At its monetary policy meeting, the BOJ decided to leave its policy rate unchanged and indicated that underlying inflation had reached 2%. An additional rate hike is now coming into view at the December meeting. The BOJ appears to be entering a phase of shifting its focus from its previous easing policy toward curbing inflation.
At its monetary policy meeting, the Bank of Japan left its policy rate unchanged, while for the first time indicating that underlying inflation, excluding temporary sources of fluctuation, had reached 2%. Nearly 14 years after introducing the 2% target under its pledge to exit deflation, the BOJ has shifted from policy operations aimed at pushing up prices to operations aimed at containing upside risks, with an additional rate hike coming into view at the next meeting in December.
The decision to leave rates unchanged was made by an 8–1 majority, and the proposal by Policy Board member Takada Hajime (高田 創), who dissented, was rejected. The BOJ Governor acknowledged that underlying inflation had reached 2%, but stressed that this was not a declaration that the target had been achieved and that it was important to establish it on a sustained basis.
The BOJ aims to raise rates toward the neutral rate, which is estimated to be in the 1.1–2.5% range. The current policy rate is 1.25%, and it was indicated that further moves to close the gap remain. Higher crude oil prices, a weaker yen and expanding AI demand are said to be influencing price increases.
Market views pricing in 2 rate hikes by next spring have become more widespread, and some expect the outlook for higher short-term interest rates to shift as the yen moves through periods of depreciation and appreciation. Attention is also focused on corporate funding conditions and banks’ lending stance, with the outlook toward the December meeting a key market focus.