BOJ stays pat on rates, signals inflation target reached - NHKニュース

The Bank of Japan left its key interest rate unchanged and indicated underlying inflation is consistent with its 2 percent target.

It's the first time the central bank has made such a comment on Japan's inflation rate since the target was introduced in 2013.

In an economic outlook report, the BOJ says inflation is at a level consistent with the price stability target of 2 percent.

The report says inflation is expected to remain around that level.

The bank's latest median forecast for price growth is 2.5 percent, excluding fresh food. Its inflation outlook for next fiscal year is 2.6 percent, compared with 2.4 percent in the previous forecast.

But it added that the forecast for fiscal 2027 does not take into account the impact of a temporary cut in the consumption tax. The tax cut bill is now under deliberation in the Diet.

The bank says according to its calculation, the cut could lower consumer prices by around 1.3 percentage points.

The bank's median forecast for economic growth is 0.7 percent in fiscal 2026. That compares with an outlook in July of 0.6 percent.

The bank sees fiscal 2027 growth also at 0.7 percent, down from 0.8 percent in July.

The BOJ left its interest rate at around 1.25 percent at the conclusion of its two-day meeting on Friday.

BOJ Governor Ueda Kazuo commented on the outlook for future rate hikes.

He said that in considering the timing and pace of adjustment, the bank will examine the likelihood of realizing the baseline scenario of the outlook for economic activity and prices, as well as the risks to the outlook.

He said these include the impact of factors such as the Middle East situation, the expansion in AI-related demand, and developments in foreign exchange rates.

An expert on the BOJ's thinking says the next rate hike could come in December.

Kato Izuru, Chief Economist at Totan Research, says: "The US Federal Reserve is likely to raise rates in December. If the BOJ does not act, the yen could weaken further. I expect the next rate hike in December. Any move after that will depend on inflation and US monetary policy. The BOJ could raise rates again three to four months later. The central bank could keep raising rates to around 2 percent over the medium term."

Kato also says higher rates are necessary, even though many people do not feel their standard of living has improved.

He says: "Central banks usually avoid raising rates when consumer spending is weak. But weak spending reflects higher living costs caused by the weaker yen and rising oil prices. The BOJ should narrow the gap between Japanese and overseas rates. Higher rates would reduce the scale of negative real interest rates. Such steps are needed to prevent further yen weakness. Otherwise, people's financial burden could get even heavier."

Kato's basic position is that rates need to go up to some extent to ease the pressure from rising prices.