The Bank of Japan declared that underlying inflation in the country was “generally consistent” with its target of 2%, the first time it has made that assessment since adopting the target in 2013.

Before this, the BOJ used to say that underlying inflation has been “approaching 2 percent.”

This comes as the central bank expectedly held rates at 1.25%, still at its highest level since 1995.

The decision was split 8-1, with board member Hajime Takata dissenting. Takata had wanted the bank to hike its policy rate to 1.5%.

The BOJ also upgraded its inflation forecast for its fiscal year 2027 to 2.6% from 2.4%, with the so-called “core-core” inflation forecast also raised to 2.7% from 2.6%. The “core-core” inflation strips out prices of fresh food and energy.

It also flagged a risk that underlying inflation will deviate upward beyond 2%, saying that “firms’ behavior has been shifting more toward raising wages and prices and there are various factors that could drive up prices.”

A CNBC survey of 16 economists before the decision revealed that all surveyed expect the BOJ to set the stage for a rate hike in December or January next year, as domestic inflation and wages continue to rise.

Thirteen respondents said they expect a terminal rate, or the level at which the BOJ is expected to stop its tightening cycle, of 1.75% to 2% by around mid-2027.

Japan has been grappling with a weak yen and high energy prices that have pushed up inflation.

However, experts have told CNBC that CPI numbers are being held down by energy subsidies from the Takaichi administration.

The most recent inflation numbers for September revealed core inflation hit their highest level in 2026, coming in at 2.1% and overshooting expectations.

Earlier this month, Finance Minister Satsuki Katayama reportedly told parliament that Japan was “on the cusp of shifting to a period of sustained inflation driven by rising wages.”

Japan’s inflation-adjusted wages rose for the eighth month in a row in August, climbing 1.5% from a year earlier, according to the most recent government data, signaling potential wage-growth-driven inflation as well.

— CNBC’s Lisa Kim contributed to this report.

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