September CPI Reaches the 2% Range for the First Time in 9 Months, and the BOJ Policy Meeting (NRI Researcher’s Current-Affairs Commentary)

The Ministry of Internal Affairs and Communications announced on the 23rd that nationwide core CPI for September, excluding fresh food, rose 2.1% year on year, up from 1.7% in August. This marked the first move into the 2% range in 9 months.

At the same time, analysis suggests that the Bank of Japan is expected to leave the policy rate unchanged at its monetary policy meeting on 29 and 30 October, increasing the likelihood that it will not implement consecutive rate hikes following September's increase. On the other hand, it has also been suggested that the Bank of Japan may lay the groundwork for indicating that the underlying inflation rate has reached the 2% target level.

At a press conference following the September meeting, Governor Ueda (植田) said that “the phase of policy has changed,” hinting at the possibility of a shift toward a phase aimed at achieving and maintaining price stability. With the short-term impact of factors such as higher crude oil prices expected to continue accelerating the pace of rate hikes, a phase in which an additional rate hike within the year is considered is also anticipated.

However, given the high uncertainty surrounding the neutral interest rate, the Bank of Japan is expected to avoid clearly judging when rates have moved above the neutral level, and caution is expected to remain in the normalization of monetary policy.

Against this backdrop, from a fiscal and government perspective, concerns may be raised about the impact of monetary tightening on the economy, but the government is thought to be in a position where it would be difficult to discourage the Bank of Japan from raising rates. This time, the Bank of Japan may indicate that it judges the underlying inflation rate to have reached the 2% target level.