Market expectations are growing that the BOJ will announce that underlying inflation has reached its 2% target, supporting expectations for a December rate hike.
The BOJ is reportedly considering stating in its quarterly Outlook for Economic Activity and Prices following its next Monetary Policy Meeting that underlying inflation has effectively reached its 2% target. This would come after consecutive rate hikes in June and September and is expected to signal continued rate hikes over a short period.
Governor Ueda Kazuo (植田和男) again emphasized the importance of establishing underlying inflation at around 2% in a speech on the 15th. Relations between the United States, Israel and Iran, AI-related demand and yen depreciation were cited as factors behind inflationary pressure, while the view was expressed that price trends were moving in line with the BOJ's baseline outlook.
Recent data, including price trends in Tokyo's 23 wards and the BOJ's Tankan survey, suggest that the output gap is moving higher. Stable wage growth and a renewed rise in crude oil prices were also cited as factors that could raise underlying inflation, although some observers believe pressure among Policy Board members for an immediate additional rate hike has not intensified.
The market is focused on the wording of the statement and Outlook report at the 29–30 October meeting. Recognition that underlying inflation has reached the target could suggest the timing of the next rate hike, and its impact on the yen and government bond yields is expected to be monitored.