The BOJ has been reported to be making progress toward anchoring inflation at around 2%, with the published material strengthening the case for rate hikes. The BOJ assesses the durability of this trend based on three factors.
In the full text of its quarterly Outlook for Economic Activity and Prices, the BOJ explained that it assesses whether underlying price increases have become anchored at its target based on three factors: inflation expectations; corporate wage- and price-setting; and the extent to which the assumption of 2% price inflation has become embedded as a habit and social norm. It noted that underlying inflation has risen toward 2% over the past several years and has gradually progressed toward becoming anchored.
The document states that, with underlying inflation fluctuating at around 2%, rate hikes are likely to ease price pressures and support consumption. The BOJ had already indicated this consistency at its October meeting, and the full text details the basis for that judgment.
On the demand side, real household spending is viewed as soft, with adverse summer weather and rising living costs exerting pressure. However, consumption is expected to hold up, supported by fuel-price subsidies, rising share prices and wage growth driven by tight labor-market conditions.
The Outlook report was released in summary form on the final day of the meeting, while the full version was published later.