Bank of Japan confirms for the first time in 13 years that the 2% inflation target has been achieved

Inflation target met for the first time since 2013

On Friday, October 30, the Bank of Japan officially confirmed for the first time that underlying inflation in the country is sustainably in line with the 2% target. The target was set in 2013, when the central bank launched large-scale monetary easing as part of the governments' years-long battle against deflation — a prolonged fall in prices that is harmful to economic growth. Although underlying consumer inflation occasionally exceeded 2% in the early 2020s, it is only now that the regulator has for the first time declared the achievement of a long-term price trend. «Underlying inflation as measured by the consumer price index is at a level that is generally in line with the price stability target of two percent, and is expected to remain at roughly that level,» the bank said in a statement on its website (based on materials from euronews).

Rate left untouched for now, but a hike is expected in December

At the same time, the Bank of Japan left its key rate unchanged at 1.25% — the board vote ended eight to one. The decision followed similar moves by the US Federal Reserve and the European Central Bank over the previous two days. At the same time, as euronewsnotes, Japanese officials are expected to raise the rate in December amid mounting inflationary pressure. Underlying inflation in September stood at 2.1%, up from 1.7% in August, according to government data published last week.

Regulator warns of acceleration above 2%

Paradoxically, having reached its target, the Bank of Japan simultaneously warned that annual CPI growth excluding fresh food «is likely to accelerate to a level clearly above two percent». Among the factors cited are rising oil costs, which should push up prices primarily for energy and goods, more expensive semiconductors amid growing global demand linked to AI, and a weakening yen. According to the outlet, Capital Economics analyst Marcel Thieliant expects further policy tightening: he forecasts the rate will reach 2% by mid-next year, with risks skewed toward even greater tightening after that.

The government is more cautious than the central bank

The divergence of views within Japan is telling: while the central bank considers inflation sustainable, the government of Prime Minister Sanae Takaichi refrains from declaring victory over deflation. «We are not there yet,» Economy Minister Minoru Kiuchi said last week. In euronews' assessment, Takaichi prioritizes economic stimulus measures over inflation control, risking creating the impression of pressure on the Bank of Japan to keep rates low. For the Japanese economy, this is the first time in 13 years that the regulator has formally acknowledged meeting its own inflation target — an event that directly affects the future trajectory of rates after a decade of ultra-loose policy that ended with the start of tightening in March 2024.