The Bank of Japan left its policy rate unchanged on Friday and, in its quarterly report on the economy and prices, concluded that underlying inflation in Japan has reached the 2% target it set in 2013.
The bank kept the uncollateralised overnight call rate at 1.25% as it ended a two-day policy meeting. Analysts and investors had widely expected it to sit tight, because the last move was recent: at its September meeting the bank raised the rate from 1%, taking Japanese borrowing costs to their highest level since 1995.
The quarterly report is the more significant document. It indicates that underlying inflation, the measure that strips out price movements which might prove temporary, has reached 2%. The bank has said that its job from now on is to anchor inflation at that level.
The target was introduced in 2013 under Haruhiko Kuroda, the governor who preceded Kazuo Ueda. Kuroda pledged at the time to achieve 2% inflation within two years. It eventually took 13.
The intervening years were not short of inflation. Japan's headline rate stood above 2% in each of 45 consecutive months between April 2022 and December 2025. Throughout that period the bank maintained that underlying inflation remained below target.
The most recent figures, released by the government last week, show consumer prices up 2.1% year on year in September. That was the first time this year that Japanese inflation topped 2%.
Inflation excluding volatile fresh food also stood at 2.1%, the highest since December last year and in line with analysts' forecasts. The reading that excludes both fresh food and energy was 2.4%.
The three readings describe the same month. Headline inflation was 2.1%, the measure excluding fresh food was also 2.1%, and the measure excluding both fresh food and energy was 2.4%. Underlying inflation, the figure the bank's target refers to, is the one that excludes price movements which might prove temporary.
Ueda was due to hold a news conference later on Friday.
The sequence repays attention. Japan's headline inflation rate stood above 2% in each of 45 consecutive months. During all 45 of them, by the measure that counts, inflation had not arrived.
This is not a contradiction, because the measure that counts excludes price movements that might be temporary. Our analysts have followed the definition to its conclusion. A price rise lasting 45 consecutive months is temporary, in the technical sense, right up to the point at which it is not.
The implications for the calendar are considerable. An episode lasting three years and nine months may be classified as a passing disturbance, provided a committee has not yet finished deciding whether it is one. Nothing in the method puts an upper bound on how long something may be temporary for, and the Bank of Japan has now established the lower bound at 45 months.
There is a practical consequence for anyone keeping accounts. Under the method as applied, a household that paid more for forty-five consecutive months was not experiencing inflation but a sequence of individually temporary prices, each of which has since been superseded by another one.
The pledge has aged no better. Kuroda promised two years and the bank took thirteen, which leaves eleven years of punctuality outstanding. The Department of Unnecessary Research notes that this is the only central bank commitment on record to have been honoured six and a half times over, in the dimension of time.
The bank's remaining task is to anchor inflation at 2%, now that inflation is 2.1%, 2.1% and 2.4% depending on which prices are counted.
Japan spent thirteen years reaching 2% inflation, forty-five months of which it spent above it. The bank's job now is to keep it there.