Tokyo, Oct. 30 (Jiji Press)–The Bank of Japan showed a view Friday that the country’s underlying inflation has reached its 2 pct target, marking a new phase in its monetary policy nearly 14 years after it first set the inflation goal and launched large-scale monetary easing. The central bank expressed this assessment of inflation excluding temporary factors in its quarterly Outlook for Economic Activity and Prices report, adopted at its two-day policy meeting that ended the same day. Underlying consumer price index inflation “is at a level that is generally consistent with the (BOJ’s) price stability target of 2 pct and is expected to remain at around that level,” the bank said in the report. The BOJ is set to shift its focus to curbing inflationary pressures to stabilize the inflation rate at around the target, saying, “It will be important, from the perspective of sustainable and stable achievement of the price stability target, to examine the degree to which underlying CPI inflation is anchored at a level around 2 pct.” At the Policy Board meeting, the BOJ decided by an 8-1 vote to maintain its policy of guiding the unsecured overnight call rate, Japan’s benchmark short-term interbank rate, to around 1.25 pct. Having raised the policy rate to the current level at its previous policy meeting in September, the bank opted to stay put this time to assess the effects of the hike on the economy, prices and corporate loans for now. The BOJ also decided to accelerate sales of its holdings of exchange-traded funds to 860 billion yen on a book value basis a year from 330 billion yen at present, starting in January 2027. The bank made this decision as there has been no major impact on the financial market from its ETF sales, which began in January this year. BOJ Governor Kazuo Ueda will explain the policy decision at a news conference later on Friday. In the quarterly report, the BOJ estimated Japan’s core CPI growth at 2.5 pct for fiscal 2026, unchanged from the July forecast, at 2.6 pct for fiscal 2027, up from 2.4 pct, and at 2.0 pct for fiscal 2028, unchanged. Real gross domestic product growth was put at 0.7 pct for fiscal 2026 and fiscal 2027, up from 0.6 pct and down from 0.8 pct, respectively, and at 0.8 pct for fiscal 2028, unchanged from July. All these figures represent the median forecasts among Policy Board members. Japan’s economy “is expected to continue growing moderately, albeit at a decelerated rate,” the BOJ said in the report. The economy will likely be underpinned by a series of government measures, accommodative financial conditions and robust demand related to artificial intelligence, despite rising energy and raw material prices reflecting the Middle East turmoil, the bank explained. The bank “will continue to raise the policy interest rate” according to developments in economic activity and prices as well as financial conditions, it said. The rate hike stance comes as upside risks to inflation are growing due to persistently high crude oil prices amid the Middle East tensions, rising global demand related to AI and higher import costs stemming from the yen’s weakness. Many financial market players expect the central bank to implement its next rate hike in December. The central bank launched its massive monetary easing campaign in January 2013 as part of the Abenomics policy mix championed by then Prime Minister Shinzo Abe. At the time, the bank set a goal of achieving 2 pct inflation in around two years. However, deep-rooted deflationary pressures repeatedly forced the BOJ to push back the target date. After ending its negative interest rate policy in March 2024, the BOJ has continued to raise interest rates and estimated that underlying inflation would reach 2 pct in the second half of fiscal 2026 or in fiscal 2027. END [Copyright The Jiji Press, Ltd.]
