The Bank of Japan formally recognized that underlying inflation has fulfilled its stability objective, expecting prices to remain near that threshold. In their latest policy meeting, officials opted to hold benchmark borrowing costs at 1.25% amid similar pauses by the Federal Reserve and European Central Bank. However, with September core inflation picking up to 2.1%, policymakers warned that price pressures could accelerate clearly above the target due to oil, AI-related semiconductor expenses, and currency depreciation.
Key points
Market expectations are increasing for an interest rate hike in December because of persi…: Market expectations are increasing for an interest rate hike in December because of persistent inflation and a weak yen.
Capital Economics projects that the nation's benchmark policy rate could climb to 2% by t…: Capital Economics projects that the nation's benchmark policy rate could climb to 2% by the middle of next year.
Accelerating prices for oil and artificial intelligence semiconductors are compounding wi…: Accelerating prices for oil and artificial intelligence semiconductors are compounding with import costs to drive sustained inflationary pressures.
Sources checked by our analysis pipeline: 1
The central bank said underlying consumer price inflation had reached a level broadly consistent with its 2% price stability target and was expected to remain around that level. The milestone marks the first time the BoJ has formally confirmed that Japan's underlying inflation trend has achieved its long-standing objective, despite core inflation intermittently exceeding the target in recent years, AFP reported.
Japan introduced the 2% inflation target in 2013 as part of an aggressive monetary easing programme aimed at ending a prolonged period of falling prices that had weighed on economic growth and discouraged consumer spending and business investment.
Read more: Global Market: South Korean stocks tumble over 5% as AI spending concerns hit chipmakers
In its latest policy decision, the BoJ kept its benchmark interest rate unchanged at 1.25%, with eight of the nine policymakers voting in favour of holding rates steady. The decision followed monetary policy announcements by the US Federal Reserve and the European Central Bank earlier this week, both of which also left their respective policy rates unchanged.
Despite the pause, expectations of another rate increase…
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