The BOJ indicated that underlying inflation would become established around 2% and plans to continue raising rates through nimble policy management. Debate over 1.75% as the next turning point has become a focus within the BOJ.
With underlying inflation reaching 2%, the BOJ indicated that it would continue operating monetary policy nimbly so that inflation becomes established at 2%. Upside risks to prices remain high, and the BOJ is expected to continue raising rates while recognizing that accommodative financial conditions will persist.
If conditions continue as they are, the next rate hike is expected in December or January next year. There is a view that higher costs caused by tensions in the Middle East and other factors will be passed through to prices, and the BOJ remains alert to the possibility that the rise in nationwide core CPI could remain elevated.
The Outlook for Economic Activity and Prices report at the policy meeting reconfirmed the risk that underlying inflation could rise above 2%. At the same time, a strong view remains that there are few signs of wage growth accelerating rapidly and generating second-round effects on prices. The BOJ is therefore said to need to monitor the timing of the core CPI peak and developments in wage increases.
Within the BOJ, 1.75% is being discussed as a possible turning point for the next rate hike, and some argue that the policy rate should be brought closer to the neutral rate at an early stage. Others believe that, depending on the nature of any shock, this level could prove to be merely an intermediate step. The current policy rate is at its highest level in 31 years, and future decisions are expected to proceed as the BOJ assesses the durability of financial conditions and economic resilience.