BoJ's review on the concept and measurement of underlying inflation
Von Sagar Dua
Aktualisiert: 30 Mar 2026
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Underlying inflation must be judged comprehensively by examining a wide range of information on economic activity and prices from multiple perspectives.
Here are key points from the Bank of Japan’s (BoJ) review on “The Concept and Measurement of Underlying Inflation” by the Monetary Affairs Department
Underlying inflation must be judged comprehensively by examining a wide range of information on economic activity and prices from multiple perspectives.
If recent rises in food prices were to persist, they could exert a sustained upward impact on overall consumer prices.
Composite indicators on medium- to long-term inflation expectations show a gradual increase toward 2%.
Gap has been on an improving trend, labor market conditions remain extremely tight, and wages are rising moderately.
Firms continue to pass on higher wages, mechanism in which wages and prices rise moderately in tandem has been taking hold.
Underlying inflation rate is rising moderately toward 2%.
From the perspective of the sustainable achievement of 2% target, it will also be necessary to monitor whether underlying inflation becomes firmly anchored at around 2%.
Increases in crude oil prices can affect underlying inflation in both upward and downward directions.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
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