Bank of Japan Signals Core Inflation Has Reached 2% Target, December Rate Hike Expectations Rise

The Bank of Japan may release important policy signals in October, indicating that the core inflation level has roughly reached the 2% price stability target. If this assessment is included in the latest economic and price outlook, it would signify a shift in the Bank's evaluation of inflation persistence and provide a basis for continued rate hikes in the coming months. Three sources familiar with the Bank's thinking stated that recent data has bolstered the decision-makers' confidence, suggesting that core inflation, which excludes one-off factors and reflects broader demand and wage changes, has approximately reached 2%. The market widely views December as a significant window for the next rate hike. If the Bank of Japan confirms that core inflation has reached around 2%, it will further strengthen market expectations for Japan entering a phase of sustained policy normalization.

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