The Bank of Japan may indicate at its October meeting that underlying inflation, the measure it watches most closely, has roughly reached the 2 percent target, Reuters reported Tuesday citing three people familiar with the central bank’s thinking. Governor Kazuo Ueda has been laying the groundwork, saying recently that anchoring underlying inflation around 2 percent is becoming more important as the bank calibrates policy.
The analytical backdrop arrived on schedule: the BoJ published its output gap, potential growth and labor market indicators on October 5, the dataset underpinning its assessment of demand-driven price pressure. The signal, if delivered, would be the bank’s most explicit statement yet that its two-decade fight against deflation is over in substance.
Markets have not moved decisively on the report. The 10-year JGB sat at 3.107 percent in morning trade and the yen at 157.98 per dollar. The question is whether the BoJ converts analytical confidence into a public declaration that the target is durably in reach.