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

The Bank of Japan is considering making a conclusion that the country’s underlying inflation rate has reached around 2%, sources said Monday.

The central bank will express its view as early as Oct. 30 in its next quarterly Outlook for Economic Activity and Prices report, to be released after the upcoming two-day monetary policy meeting from Oct. 29.

With companies increasingly passing on higher costs to consumers, the BOJ’s 2% inflation target is believed to be coming within reach.

The BOJ attaches importance to underlying price trends, which exclude temporary factors, in formulating its monetary policy. The bank has said that the underlying inflation rate will reach 2% sometime between the second half of fiscal 2026 and fiscal 2027.

BOJ Gov. Kazuo Ueda told a news conference after the latest monetary policy meeting in September that the underlying inflation rate “is more or less reaching 2%.”

The focus will be whether the underlying rate will stabilize around 2%. The BOJ believes there is a risk that inflation could slow again or rise faster than it expects. It will closely monitor whether the underlying rate will remain around 2%.

The 2% inflation target, included in a 2013 joint statement between the BOJ and the government, is linked to the consumer price index (CPI), disclosed by the internal affairs ministry. But the index is swayed by temporary factors.

In August, the closely followed core CPI, which excludes fresh food prices, rose 1.7% from a year earlier, with its rise curbed by the negative impact of government gasoline subsidies.

The BOJ expects that if the underlying inflation rate remains around 2%, the CPI will also stabilize around that level over time after temporary factors fade away. The central bank’s inflation target would be achieved if the underlying rate stays around 2%.