Bank of Japan Says Underlying Inflation Is Generally Consistent with 2% Target, Holds Rate at 1.25%

The Bank of Japan said underlying inflation in the country was generally consistent with its 2% price stability target, marking a significant development in its long-running effort to overcome deflation, while keeping its benchmark interest rate unchanged at 1.25%.

The Bank of Japan maintained its benchmark interest rate at 1.25% while saying underlying inflation was generally consistent with its 2% target.

The central bank presented the assessment in its quarterly economic outlook following a two-day monetary policy meeting on Oct. 29 and 30. As widely expected, the BOJ’s nine-member policy board voted 8-1 to maintain its short-term policy rate at 1.25%.

Board member Hajime Takata dissented, calling for a 0.25-percentage-point increase to 1.5%.

The BOJ reiterated that it would continue raising interest rates and adjust the degree of monetary accommodation as necessary, depending on economic activity and price developments.

The central bank said underlying inflation was “generally consistent with the price stability target of 2% and is expected to remain at around that level.”

However, it stressed the importance of determining whether inflation expectations had become firmly anchored around the target.

The assessment does not mean the BOJ has permanently secured stable inflation at 2%.

The central bank still faces the challenge of sustaining price growth around that level without allowing inflation to accelerate excessively.

The BOJ cited developments in the Middle East, demand related to artificial intelligence (AI) and foreign exchange movements as key risks to its economic and price outlook.

The Japanese government has yet to formally declare an end to deflation, although consumer prices have risen in recent years.

The BOJ first adopted its 2% inflation target in January 2013 through a joint statement with the government of then Prime Minister Shinzo Abe. The central bank initially aimed to achieve the target within about two years.