The Bank of Japan (BOJ) left short-term rates unchanged at its policy board meeting but indicated that underlying inflation is at its 2% target.
While Governor Ueda Kazuo was careful not to declare the inflation target achieved, the bank is wary of higher inflation and will work to limit the risk of overshooting its target, continuing the gradual normalization of rates.
The Takaichi government’s need to demonstrate its responsibility to markets gives the bank more room to normalize, though the result is an awkward mix of fiscal expansion and slowing monetary expansion – and possible friction down the road as the bank approaches its terminal rate.
