The Bank of Japan has begun considering signaling that it recognizes the underlying rate of inflation, which it emphasizes in conducting monetary policy, has reached 2%. It could make that judgment as early as this month's monetary policy meeting, according to multiple people familiar with the matter. In its September meeting statement, the BOJ maintained the view that inflation would reach a level consistent with 2% "from the second half of fiscal 2026 through fiscal 2027," but views among other board members are shifting: board members Hajime Takata and Naoki Tamura have already argued that 2% has been reached, and Governor Kazuo Ueda said at a press conference after the September meeting that inflation is "roughly hitting" 2%. The BOJ's Tankan survey released on October 1 confirmed that companies' medium- to long-term expected inflation rates remain elevated, and the monthly labor survey also shows wage growth continuing at around 3% year on year, with some pointing out that this suggests underlying inflation has reached 2%. For this reason, the BOJ is highly likely to signal its recognition that 2% has been reached in the Outlook Report on economic and price developments to be discussed at the October meeting. Ideally, when underlying inflation reaches 2%, the policy rate would also have reached the neutral rate, but despite a series of rate hikes the financial environment remains accommodative and the policy rate is still some distance from the neutral rate. However, according to the people familiar with the matter, cautious voices within the BOJ oppose raising rates again at the October meeting following September, citing the need to assess the economic impact of the rate hikes so far, and noting that the Tankan's corporate price outlook does not show inflation expectations rising further and that monthly price indicators are moving in line with the BOJ's assumptions. The BOJ will make a final decision on whether to raise rates after also assessing market conditions up to the meeting.
BOJ moving toward recognizing 2% inflation reached, signaling eventual further rate hikes, which lifts JGB yields.
BOJ signaling inflation has hit 2% raises expectations of further rate hikes, strengthening the yen.
