Bank of Japan says it has reached its inflation target set 13 years ago

The Bank of Japan (BoJ) maintained the status quo on its rates on Friday, affirming for the first time that its inflation target had been achieved, more than thirteen years after setting this objective aimed at pulling the country out of deflation. As was widely expected by the markets, the institution left its key rate unchanged at 1.25%, after raising it in mid-September to its highest level in 31 years. This status quo was approved by eight of the nine members of its monetary policy committee after a two-day meeting, despite Japan's persistent surge in consumer prices.

The BoJ has also taken note of this: it affirmed on Friday that its underlying inflation target of 2% had now been reached, more than thirteen years after having set it, at a time when the archipelago was struggling to emerge from stubborn deflation. Soaring oil prices The BoJ notes, however, that inflationary fever should exceed the desired level: enough to pave the way for further monetary tightening at its next meeting in December. “While underlying inflation is at a level broadly consistent with the price stability objective of 2%, there is a risk that medium and long-term inflation expectations will increase and that inflation will deviate upwards, thus exceeding this objective,” explained the institution in its report.

“Indeed, the behavior of companies tends more and more towards increases in wages and prices, and various factors could exert upward pressure on prices,” she underlines. And to detail: “the rise in crude oil prices should increase prices, mainly those of energy and goods. Furthermore, the rise in semiconductor prices - reflecting increased global demand - as well as the depreciation of the yen (which makes imported products more expensive, Editor's note), should contribute to the increase in prices.

While the archipelago, long threatened by deflation, has been faced with a sustained rise in consumer prices since spring 2022, the BoJ began tightening its rates in March 2024 after 10 years of ultra-accommodating monetary policy. In recent years, the country has experienced inflation levels well above the target level of 2% - reaching 4% in December 2022 - but the Bank of Japan then refrained from declaring its objective achieved, preferring to wait to see the deep trends confirmed. Japanese inflation is exacerbated this year by the surge in oil prices due to the war in the Middle East which is having repercussions in all sectors: consumer prices (excluding fresh products and energy) rose by 2.4% year-on-year in September.

Machine-translated from French