BOJ to declare underlying inflation has reached 2%, sources say

The Bank of Japan (BOJ) is on the verge of declaring that Japan's underlying inflation rate has reached approximately 2%, according to sources. The central bank plans to announce its view on this matter as early as October 30 in its upcoming quarterly Outlook for Economic Activity and Prices report, which will be released after its monetary policy meeting on October 29. Companies are increasingly passing on higher costs to consumers, suggesting that the BOJ's 2% inflation target may be within reach.

The BOJ emphasizes the importance of underlying price trends, which exclude temporary factors, when determining its monetary policy. The bank has indicated that the underlying inflation rate is likely to reach 2% sometime between the second half of fiscal 2026 and fiscal 2027. BOJ Governor Kazuo Ueda stated at a news conference following the latest monetary policy meeting in September that the underlying inflation rate "is more or less reaching 2%."

The focus will be on whether the underlying rate stabilizes around 2%. The BOJ acknowledges the risk that inflation could either slow down again or rise faster than anticipated. It will closely monitor the underlying rate to ensure it remains around 2%. The 2% inflation target, established in a 2013 joint statement between the BOJ and the government, is tied to the Consumer Price Index (CPI), published by the Ministry of Internal Affairs and Communications.

However, the index is influenced by temporary factors. In August, the core CPI, which excludes fresh food prices, increased by 1.7% from a year earlier, with the rise tempered by the government's gasoline subsidies.

If the underlying inflation rate remains around 2%, the BOJ expects the CPI to stabilize at a similar level over time after temporary factors diminish. The central bank's inflation target would be met if the underlying rate stays around 2%.