Bank of Japan (BOJ) Governor Kazuo Ueda said on Monday, 19 October 2026, that Japan's underlying inflation is now "quite close" to the central bank's 2% target, reinforcing expectations that interest rates will keep rising gradually.
What Ueda said
Speaking in parliament in Tokyo, Ueda said: "It is becoming more important to anchor underlying inflation around our 2% target." He pointed to several pressures pushing prices up:
- Strong global demand linked to artificial intelligence
- A tight job market in Japan
- Higher raw material costs linked to tensions in the Middle East
He also warned that failing to adjust interest rates appropriately "could push up long-term interest rates", and said the BOJ's plan to gradually reduce its bond purchases remains unchanged. Ueda had made similar comments about continuing to raise rates on 16 October.
Where rates stand
The BOJ raised rates in September, taking its policy rate to 1.25%. Markets mostly expect it to hold rates at its next meeting on 30 October, with a possible rise to 1.5% as early as December.
Why it matters
- The end of ultra-low rates: after years of near-zero or negative rates, Japan is steadily normalising policy, a major shift for one of the world's largest economies.
- The yen: the dollar is trading near 158 yen. Higher Japanese rates could support the yen over time by narrowing the gap with US interest rates.
- Bond markets: Japanese government bond yields have been rising on expectations of more hikes and on Prime Minister Sanae Takaichi's spending plans, and those moves can ripple into global bond markets.
- Global investors: Japanese investors hold large amounts of foreign assets, so changes in Japanese rates can influence money flows around the world.
What to watch
Investors will look for further clues from Japan's inflation data and wage trends ahead of the 30 October policy decision, as well as any comments on the yen's level from finance ministry officials.
This article is based on reports available as of 19 October 2026. Market figures move quickly and may have changed since publication.
