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 deflation.
The BOJ provided the assessment in its latest quarterly economic outlook report, released after a two-day policy meeting. As widely expected, the central bank left its benchmark interest rate unchanged at around 1.25 percent.
Governor Kazuo Ueda stressed the need to stabilize inflation around the target amid risks that it could exceed forecasts, signaling a possible interest rate hike.
At a press conference after the policy meeting, Ueda said the central bank's monetary policy will increasingly focus on firmly anchoring inflation at around 2 percent, adding that it will closely monitor price developments and other economic factors.
One of its nine board members, Hajime Takata, dissented, calling for a rate hike to around 1.5 percent.
The BOJ reiterated that it would continue to raise interest rates and adjust the degree of monetary accommodation as required.
The government has yet to officially declare an end to deflation, but prices have continued to rise in recent years. The BOJ now faces the challenge of keeping inflation stable at around 2 percent without allowing prices to rise too quickly.
Underlying inflation is at a level that is "generally consistent with the price stability target of 2 percent and is expected to remain at around that level," the BOJ said, while stressing the need to address whether inflation expectations have become firmly anchored around 2 percent.
The BOJ cited developments in the Middle East, artificial intelligence-related demand 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 BOJ 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.
Even as Japan moves further away from deflation, there are concerns that higher living costs could weigh on economic activity.
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 in book value. The plan will take effect in January 2027.
In the current fiscal year ending March, the BOJ expects the Japanese economy to expand 0.7 percent, compared with its previous forecast of 0.6 percent growth. It left the outlook for core consumer price inflation unchanged at 2.5 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 to assess the impact of that increase.
Markets are increasingly expecting another rate hike at the next meeting, scheduled for Dec. 17-18.
