Bank of Japan says inflation hit 2% target after 13 years
The Bank of Japan (BoJ) said on Friday inflation had hit its two percent target, more than 13 years after it adopted the goal in a bid to pull the economy out of deflation, but held off hiking interes...
The Bank of Japan reported on Friday that inflation had reached its 2% target, a milestone more than a decade after setting the goal to combat deflation and stimulate the economy. The two percent inflation target was established in 2013 as the Bank initiated extensive monetary easing measures. While core consumer inflation had occasionally surpassed the target in the early 2020s, this marked the first official confirmation by the central bank that the long-term price trend had been achieved.
According to the Bank, underlying CPI inflation currently aligns with the 2% price stability target and is expected to remain around that level. Despite this, Prime Minister Sanae Takaichi's government has taken a cautious approach, with Economy Minister Minoru Kiuchi stating that they are not yet "there" in addressing deflation. Takaichi has prioritized economic stimulus measures over inflation control, potentially influencing the Bank's stance on interest rate adjustments.
The Bank's statement revealed that it maintained its key interest rate at 1.25% following an eight-to-one majority vote, in line with recent decisions by the US Federal Reserve and the European Central Bank. However, Japanese officials anticipate a rate hike in December as inflationary pressures intensify. Japan has experienced persistent consumer price increases since spring 2022, and the Bank began tightening interest rates in March 2024 after a decade of loose monetary policy.
Core inflation in September reached 2.1%, a significant increase from 1.7% in August, according to government data. The Bank cautioned that the year-on-year rate of increase in CPI, excluding fresh food, is expected to surge above the 2% target. This forecast is attributed to factors such as rising oil costs and semiconductor prices, driven by increased global demand for AI-related products.
Additionally, the depreciation of the yen is also contributing to price increases. Economists suggest further tightening is probable, with the policy rate potentially reaching 2% by mid-next year.
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