Bank of Japan says inflation target reached, holds rate

The Bank of Japan said Friday that inflation had reached its 2 percent target more than 13 years after the goal was adopted, but it kept its key interest rate unchanged at 1.25 percent.

The central bank said underlying consumer price inflation was “generally consistent” with the price stability target and was expected to remain around that level. It held rates after an eight-to-one majority vote.

The 2 percent goal was set in 2013 as Japan sought to end decades of deflation through large-scale monetary easing. The BoJ began tightening rates in March 2024 after 10 years of ultra-loose policy.

Prime Minister Sanae Takaichi's government has been more cautious about declaring an end to deflation. Economy Minister Minoru Kiuchi said last week: “We're not there.”

Government data released last week showed core inflation at 2.1 percent in September, up from 1.7 percent in August. The BoJ said core CPI excluding fresh food was likely to accelerate clearly above 2 percent, citing factors including oil costs, semiconductor prices linked to AI-related demand, and yen depreciation.

Marcel Thieliant of Capital Economics said further tightening looked very likely and forecast the policy rate would reach 2 percent by the middle of next year.