BOJ may signal underlying inflation has hit 2% goal, sources say

The Bank of Japan might announce this month that underlying inflation has likely reached its 2% objective, according to three sources with insight into its deliberations, indicating its preparedness to hike interest rates once more in the coming months. The declaration, while largely symbolic, would align with prevalent market forecasts of a December rate increase and demonstrate the BOJ's willingness to persistently raise rates in short intervals.

The central bank has lately emphasized the necessity of stabilizing underlying inflation near its target when determining the speed and timing of subsequent interest rate hikes. Having just raised rates in September, many within the bank are hesitant to implement another hike this month and prefer to assess further data on how past rate increases have impacted domestic financial conditions, the sources noted.

Recent economic indicators, such as Tokyo consumer inflation and the bank's quarterly tankan business survey, could be bolstering the BOJ's confidence that underlying inflation has nearly attained its 2% target, the sources reported. However, the tankan also revealed corporate inflation stagnating, reducing the urgency for an immediate policy action, the sources explained, exerting less pressure on the BOJ to provide back-to-back rate hikes this month.

Inflation expectations remain high but not surging, implying that while inflation risks persist, they are not rising sharply, a sentiment shared by another source. Prices appear to be adhering to the BOJ's projections, indicating that underlying inflation is now approximately at its target, a third source affirmed. The sources declined to speak publicly due to their lack of authorization.