Comments from Bank of Japan officials and experts described reaching 2% underlying inflation as symbolic and indicated that only around 2 further rate hikes are expected. The Bank of Japan plans to continue managing policy while assessing the neutral-rate range, with future inflation trends and financial-market reactions remaining key focuses.
While the view was expressed that the underlying inflation rate had reached 2%, it was also said that this achievement had only symbolic significance. The previous attainment of 2% had occurred against a backdrop of accommodative financial conditions aimed at raising inflation toward the target, whereas policy management is now expected to shift toward curbing upside inflation risks.
The Bank of Japan has emphasized upside inflation risks and is understood to envisage raising rates once every 3 months, with the neutral rate in mind, at a level that neither stimulates nor restrains the economy. Some view the market reaction as having been in line with expectations and lacking any significant movement.
The outlook is for rate hikes to stop after around 2 more increases. The next hike is expected in December, followed by an additional hike in April or June 2027, with the terminal rate expected to be 1.75%. The Bank of Japan's estimate of the neutral rate is 1.1% to 2.5%, and some interpret rates above 2% as requiring caution in the Bank's relationship with the government.
Overall, comments from Bank of Japan officials and experts organized the current inflation trends and the direction of monetary policy, while some noted that the financial-market reaction was limited.