At the October Bank of Japan meeting, the Bank stated that underlying inflation had reached the 2% level. Governor Ueda explained the relationship between credibility and independence, and stressed the importance of sustained dialogue and action at his first policy meeting.
At the October monetary policy meeting, the Bank of Japan announced that underlying inflation had reached the 2% level. This level, which the Bank had pursued for many years, is gradually taking on a new meaning as a “target” for pursuing stability. Governor Ueda said that sustained dialogue and action would be important to establish credibility as the guardian of price stability.
The Outlook Report presented multiple indicators for assessing whether underlying inflation is becoming entrenched, and also referred to the difficulty of anchoring inflation expectations while advancing that process. The analysis found signs that companies’ expectations were converging at around 2%, while household expectations continued to vary.
Based on past experience, the Bank of Japan is said to have faced challenges in its “dialogue and distance from the market,” and at this first policy meeting it demonstrated an emphasis on consistency between policy management and its explanations. The difficulty of communicating the shift in the phase of interest-rate increases to the market was also mentioned.
With less than approximately 1.5 years remaining in the term, building the credibility to support the achievement of entrenched 2% inflation has emerged as a new challenge. Amid domestic conditions that differ from those in the US and Europe, efforts to stabilize the degree to which inflation becomes entrenched are expected to continue.