TOKYO - The Bank of Japan said Friday that underlying inflation has "generally" reached its 2 percent target, nearly 14 years after the goal was set as part of efforts to end decades of deflation.
As widely expected, the central bank left its benchmark interest rate unchanged at around 1.25 percent after a two-day policy meeting, following its September rate hike.
At a press conference after the meeting, BOJ Governor Kazuo Ueda stressed the need to stabilize inflation around 2 percent, warning that price increases could overshoot the target and signaling further interest rate hikes.
The central bank's "monetary policy will increasingly focus on keeping underlying inflation firmly anchored around 2 percent," Ueda said, adding that the BOJ will adjust the degree of monetary accommodation at an appropriate time while closely monitoring economic and price developments.
The governor also said all nine members of the BOJ's Policy Board agreed that underlying inflation was generally consistent with the 2 percent price stability target, although it has "yet to be achieved in a sustainable and stable manner."
But the decision to leave the policy rate unchanged was not unanimous as Hajime Takata dissented, calling for a rate hike to around 1.5 percent.
He argued that the BOJ has entered a new phase requiring a faster move toward the neutral interest rate to allow for more flexible policy adjustments.
The BOJ cited developments in the Middle East, demand related to artificial intelligence and foreign exchange movements as key risks to the economic and price outlook.
The BOJ first adopted its 2 percent inflation target in January 2013 in a joint statement with then Prime Minister Shinzo Abe's government. It initially aimed to achieve the target within about two years.
Then Governor Haruhiko Kuroda launched an aggressive monetary easing program, but the target remained out of reach, with the central bank repeatedly postponing the timeline.
Recent inflation has been driven largely by external factors, including higher energy prices. Sustained wage growth will be crucial for creating a virtuous cycle of rising wages and prices.
The government has yet to officially declare an end to deflation and Ueda declined to comment on whether the joint statement with the government might be reviewed.
The BOJ also decided to accelerate sales of its holdings of exchange-traded funds, raising the annual pace from about 330 billion yen ($2.1 billion) to 860 billion yen on a book-value basis, effective January 2027.
Meanwhile, the BOJ raised its economic growth forecast for fiscal 2026 to 0.7 percent from 0.6 percent, while lowering its projection for fiscal 2027 to 0.7 percent from 0.8 percent.
It kept its core consumer price inflation forecast for fiscal 2026 unchanged at 2.5 percent, but raised its projection for fiscal 2027 to 2.6 percent from 2.4 percent.
Earlier this week, the U.S. Federal Reserve and the European Central Bank both decided to leave their policy rates unchanged.
At its previous meeting in September, the BOJ raised its policy rate to around 1.25 percent, its highest level in 31 years. It kept rates unchanged in October.
Markets are increasingly expecting another rate hike at the next meeting, scheduled for Dec. 17-18.
