The BOJ’s “2% achieved” declaration would effectively signal an exit from reflation, yet the dilemma of defending the weak yen means it is unlikely to mark the end of rate hikes 【Daisuke Karakama (唐鎌大輔): Japan Through the Lens of Foreign Exchange】 13 years after Abenomics, the BOJ faces pressure to reconcile its approach toward the neutral interest rate with currency defense

At this month’s BOJ Monetary Policy Meeting, the BOJ may conclude that underlying inflation has reached around 2%. The current estimate is that this will occur from the second half of fiscal 2026 through fiscal 2027, and a more definitive assessment is expected at a meeting accompanied by the Outlook Report.

Underlying inflation is assessed based on a combination of several indicators. Although core CPI has exceeded 2% for roughly the past five years, there is a view that it has not yet “reached” the target, making the assessment difficult. Broad interest in measures to address high prices, including among investors, remains strong in the market.

Some Policy Board members who voted against a rate hike at the September meeting made comments suggesting a change in policy in a Kyodo News interview on 6 October, and have reportedly indicated that they support gradual interest-rate adjustments. Even minor developments attract considerable market attention regarding the BOJ’s direction.

A declaration that the 2% target has been reached is likely to be viewed as a symbol of an exit from reflation, but it may also fuel discussion about continued rate hikes. Attention is focused on whether coordination between the BOJ and the government on currency-defense policy will affect the yen market going forward.