BOJ flags progress in anchoring inflation around target

By Leika Kihara

TOKYO, Nov ‌2 (Reuters) - Japan ​has made ​gradual progress towards anchoring inflation around the central bank's 2% target, the Bank of Japan said in a ‌report on Monday, bolstering the case for raising interest ⁠rates.

In reaching its decision, the BOJ weighed up inflation expectations, firms' wage- and ‌price-setting behaviour, and the degree ‌to which households and firms act based on the assumption that prices will rise by around 2%, the central bank ​said.

"With underlying inflation moving around 2% and upside risks to prices warranting attention, interest rate hikes will likely alleviate price ⁠pressures and underpin consumption," the bank said in the full version of its quarterly outlook.

Firms' ​inflation outlook appears to gradually converge around 2%, while households' inflation expectations vary widely, it added.

"In recent years, ​the share of wage increases at ‌levels broadly consistent with 2% increase plus labor productivity growth has risen," the bank added.

"As such, underlying ⁠inflation has risen toward a level around 2% over the past few years, and there has been gradual progress toward anchoring it at that ⁠level."

Domestic consumption has recently been sluggish in real terms, the bank added, due ​to bad weather during the summer and a hit to spending from rising living costs.

"But consumption as a whole is likely to remain resilient" partly ‌thanks to government subsidies to curb fuel prices, higher stock prices and rising wages from a tight ‌job market, it said.

The BOJ publishes the full version of its ⁠quarterly report on the market ‌day after it concludes ​its policy meeting, at which it releases a summary.

(Reporting by Leika Kihara; Editing by Thomas Derpinghaus and ‌Clarence Fernandez)

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