The Bank of Japan may state this month that underlying inflation in the country has approximately reached the 2% target level. This could indicate the central bank’s readiness to raise interest rates again in the coming months, Channel NewsAsia reports, citing Reuters and three informed sources.
Such a signal would be largely symbolic, but could strengthen market expectations of a rate hike in December. The Bank of Japan is increasingly focused on ensuring that underlying inflation remains steadily near the 2% target when determining the pace and timing of further monetary policy tightening.
In September, the central bank already raised its key rate to its highest level in 31 years. Before that, the rate was raised in June. At the same time, some Bank of Japan officials are cautious about a new decision as early as October and want to assess how previous steps have affected domestic financial conditions.
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The sources said that recent data, including Tokyo consumer inflation figures and the results of the quarterly tankan business sentiment survey, strengthened the regulator’s confidence that underlying inflation is approaching the target. At the same time, the survey showed that corporate inflation is not accelerating enough to require an immediate central bank response.
According to the sources, inflation expectations remain high but are not rising sharply. The prospects for a sustained movement of underlying inflation near 2% are also affected by further increases in wholesale and consumer prices, steady wage growth, and another rise in oil prices.
The Bank of Japan may reflect this assessment in its quarterly report, due to be released after its next monetary policy meeting on October 29–30. In its July report, the regulator forecast that underlying inflation would reach a level consistent with the 2% target between October 2026 and March 2028.
