BoJ Governor Kazuo Ueda said it has become increasingly important to anchor underlying inflation around the 2% target, signalling that the Bank’s focus is shifting from achieving durable inflation to preventing it from overshooting. Speaking at an annual meeting of securities firms, Ueda said economic and price developments were moving in line with the BoJ’s baseline scenario and that “financial conditions remain accommodative and continue to underpin economic activity” even after September’s rate hike. He added that the BoJ would continue raising borrowing costs to adjust the degree of monetary support, while warning that the Iran conflict, strong AI-related demand and Yen weakness could all add to upside inflation risks.
The shift in language could be reinforced at the BoJ’s October 29–30 meeting. According to Reuters sources, the central bank may signal in its quarterly outlook that underlying inflation has roughly reached 2%, a notable change from the July report, which still projected target-consistent underlying inflation sometime between October 2026 and March 2028. Ueda had already said in September that underlying inflation was “quite close to 2%,” while some members said it could reach that level “in no time.” The potential October update would therefore formalize a broader change in the policy framework: from waiting for underlying inflation to reach target to ensuring it remains anchored there.
That does not necessarily point to another hike this month. Reuters sources said many officials remain cautious about moving again immediately after September and prefer to assess how earlier increases are affecting financial conditions. The Tankan also suggested inflation expectations remain elevated without accelerating sharply enough to demand an immediate response. The implication is that the BoJ can become more confident about sustained 2% inflation while still holding in October, leaving the medium-term tightening bias intact and keeping another near-term hike firmly in play.
Key Takeaways
- BoJ Governor Kazuo Ueda is shifting the policy emphasis from getting underlying inflation to 2% toward keeping it anchored around that level.
- Ueda said it had become “more important than before to ensure underlying inflation becomes anchored around 2%”, while warning that the Iran conflict, AI-related demand and Yen weakness could push inflation too high.
- He also stressed that “financial conditions remain accommodative” even after September’s rate hike and reiterated that the BoJ will continue raising rates to adjust the degree of monetary support.
- Reuters sources said the BoJ may use its October 29–30 Outlook Report to signal that underlying inflation has roughly reached the 2% target.
- Such a shift would be significant because the July report still projected target-consistent underlying inflation only sometime between late 2026 and early 2028.
- An October hike is not necessarily the message. Officials reportedly prefer to assess the effect of September’s move and do not see inflation expectations accelerating sharply enough to force immediate action.
- The cleaner interpretation is greater confidence in the inflation regime, but not necessarily greater urgency at the October meeting.
- The medium-term implication remains hawkish: a hold in October would still be consistent with further tightening in the coming months.
