The Bank of Japan is placing increasing emphasis on “underlying inflation” to justify its cautious approach to further rate hikes, even as headline inflation sits well above target — a move that’s drawing criticism for clouding its policy message.
- core and headline consumer inflation in Japan remain above 2%
- BOJ points to a range of less conventional indicators — including the weighted median, mode, and services inflation — to argue that domestic price pressures remain subdued
These underlying metrics are currently tracking below the BOJ’s 2% target, reinforcing Governor Kazuo Ueda’s argument that policy should stay accommodative:
- “We’ve de-anchored expectations from zero, but haven’t yet re-anchored them at 2%”
Info comes via a Reuters report. Adding:
- services inflation still at just 1.4% in May
- policymakers remain wary of tightening too quickly and stalling a fragile recovery
- divisions within the BOJ are growing
Markets now expect the BOJ’s next 25bp hike may not come until early 2026.
The Bank next meets on July 30-31, new projections for inflation are expected
BOJ turns dovish – leans on ‘underlying inflation’ to justify slow hikes, messaging murky
