At its September policy meeting, the Bank of Japan raised its policy rate to 1.25% and accelerated the pace of rate hikes to once every three months. The focus will now be on a new phase in which sustaining 2% inflation becomes a challenge in the October Outlook Report.
At its monetary policy meeting on 18 September, the Bank of Japan raised its policy rate to 1.25% and moved from exiting negative interest rates toward normalizing monetary policy. The rate hike, the first in three and a half years, suggested that the policy rate had approached the upper end of the neutral rate range.
The Bank of Japan reportedly considered raising rates faster than before in response to upside risks to prices, while also facing the impact of higher crude oil prices caused by instability in the Middle East. Explanations provided after the policy meeting indicated that the bank had entered a phase in which future price trends would be closely watched.
A BOJ official said that inflation was expected to approach 2%, while stating that the key issue going forward would be “how to sustain inflation at around 2%.” The inflation outlook in the Outlook Report is expected to be a focus.
This follows earlier indications, including preparations for a rate hike since April this year and references to a change in the phase of policy management.