The Bank of Japan stated that the underlying inflation rate had reached its 2% target. Although this is a milestone achieved over 13 years, the appropriate course for future rate hikes and expansionary fiscal policy is again being called into question.
The Bank of Japan announced that the underlying inflation rate, excluding temporary fluctuations, had reached its 2% target. This is regarded as a policy milestone for the Bank of Japan, which has pursued an end to prolonged deflation since the target was introduced in 2013.
The achievement coincided with a period in which resource prices surged following Russia’s invasion of Ukraine in 2022 and high prices continued to put pressure on households. The Bank of Japan ended its unconventional easing in spring 2024, and the pace of rate hikes since then has been gradual.
Since this summer, Japan’s price increases have become more pronounced under the influence of global inflationary pressure and the yen’s weakness, making it a challenge to determine how to maintain the 2% level. It has been suggested that additional rate hikes are needed to contain and stabilize price increases.
The government is also being asked to consider the appropriate fiscal and monetary policy mix while balancing the end of deflation with price stability. There have been calls to review the expansionary fiscal approach, including consumption-tax cuts and gasoline subsidies, and debate is needed to align the policies of the Bank of Japan and the government.