BoJ sets out how it will judge whether underlying inflation is anchored at 2%
Serguey Asael Shinder2 min readThe full text of the Bank of Japan's October 2026 Outlook for Economic Activity and Prices, published on 2 November, includes a box that explains how the bank will decide whether underlying CPI inflation is anchored at around 2%. The bank says indicators currently suggest underlying inflation is at a level generally consistent with its 2% target, and the box sets out what would have to be true for that level to be called anchored.
Anchored, in the bank's definition, means underlying inflation is around 2% and expected to stay there, so that even after an outside shock it would be unlikely to move far above or below. The bank lists three things to examine: whether 2% is reflected in how inflation expectations are formed, whether it is consistent with firms' wage- and price-setting, and, as a supplementary factor, how far practices and norms built on prices rising by 2% have spread. For expectations it borrows a framework used by other central banks: the level of medium- to long-term expectations, their spread across groups, and how much they react to shocks.
On the evidence so far, the box says the lower tail of firms' five-year inflation outlooks in the Tankan has moved from around 0% into positive territory, and firms' outlooks appear to be converging towards about 2%. Households' expectations still vary relatively widely, while more experts now expect inflation of around 2%. The estimated pass-through from experts' short-term to long-term expectations has weakened, and the gap with the United States has started to narrow. On wages, the lower tail of growth in scheduled cash earnings has shifted from 0% into positive territory.
What it means
The box is a checklist the bank can be held to: it names the measures it will look at before declaring the 2% target secure. It also flags its own caveat, that with CPI inflation expected to run clearly above 2%, the weakening link between short- and long-term expectations has to be watched to see whether it holds.