Thirteen Years to Two Percent: Why the Bank of Japan Chose to Wait
For more than a decade, the Bank of Japan chased a number that kept slipping away. On Friday it finally said it had caught it, and then decided to do nothing. That is less contradictory than it sounds.
At the end of a two-day meeting, the central bank left its short-term policy rate at 1.25%, the level it reached only in September when it lifted borrowing costs to their highest point since 1995. Few people expected another move so soon. The more important message came in the quarterly outlook report published alongside the decision: underlying inflation in Japan has now reached the 2% target. From here on, the bank says, its task is to keep it anchored there.
A target set in another era
The goal dates back to 2013, when Governor Haruhiko Kuroda promised to hit 2% in about two years with a flood of asset purchases. It took thirteen. For much of that time, headline inflation was either too low or, after 2022, driven by imported energy and food costs that the bank refused to treat as the real thing. Prices rose above 2% for 45 months in a row from April 2022, yet officials insisted the underlying trend was weaker.
That distinction now looks settled. National consumer prices rose 2.1% in September, and the measure excluding both fresh food and energy stood at 2.4%. Tokyo’s figures for October, released hours before the decision, were firmer still: 2.6% excluding fresh food, with the core-core gauge also at 2.6%. Tokyo usually leads the national trend.
Why hold, then?
There are three good reasons for patience. First, September’s hike has barely worked its way through mortgages, corporate loans and bank deposits. Moving again within six weeks would signal urgency the data do not show.
Second, the global backdrop turned rough this week. Asian technology shares fell sharply on Friday as investors questioned whether the enormous spending on artificial intelligence will pay off. Korea’s main index dropped about 5% and the Nikkei roughly 3%. A central bank that raises rates into a market slide risks being blamed for it.
Third, the yen is no longer forcing the bank’s hand. It firmed slightly as investors sought safety, trading around 157 per dollar, and US Treasury yields have fallen steeply in October. The pressure that might have pushed Tokyo into a defensive hike has eased for now.
What households should watch
For ordinary families, the shift from “reaching” to “anchoring” matters more than any single meeting. It means the bank now sees 2% as the normal state of affairs, not a temporary peak. Savers can expect deposit rates to creep higher over time; borrowers with variable-rate home loans should plan for gradual increases rather than a return to near-zero.
The real test will be wages. If next spring’s pay talks deliver raises that keep pace with prices, the bank will feel confident enough to continue its slow climb, perhaps toward 1.5% in 2027. If they disappoint, the “anchor” could start to drag. After thirteen years of waiting, a few more months of watching seems a reasonable price for getting the next step right.