BOJ cautious on rate hikes due to low underlying inflation despite high headline inflation

From Yahoo Finance: 2025-06-27 00:09:00

The Bank of Japan is hesitant to raise interest rates due to concerns over underlying inflation, which suggests weak consumer demand despite headline inflation being above the 2% target. Analysts note the challenges in managing inflation expectations and measuring underlying inflation accurately, leading to a pause in rate hikes.

Japan’s inflation problem is evident with consumer inflation at 3.6%, well above the US and second highest among G7 nations. While other measurements like the core index have exceeded the 2% target for years, the BOJ’s recalibrated indicators show underlying inflation below 2%, prompting a cautious approach to rate hikes.

The BOJ’s focus on medium- and long-term inflation expectations, services price inflation, and recalibrated measures like the weighted median and “mode” indicate underlying inflation remains below 2%. Concerns over economic impact from higher US tariffs have led to a pause in rate hikes, with ambiguity persisting over the central bank’s next steps.



Read more at Yahoo Finance: Analysis-In dovish tilt, BOJ zooms in on obscure underlying inflation trends