Katayama says government aligned with BOJ after rate rise to 1.25%

Key Facts

Japanese Finance Minister Satsuki Katayama told parliament the government shared the outlook of the Bank of Japan, which set interest rates at around 1.25% in September. She was responding to a question about whether the government's plan to cut the consumption tax could conflict with the central bank's interest rate increases, according to Reuters. Katayama said: "I see no gap between the government's view and the Bank of Japan's view." She described Japan's economy as being on the verge of a transition to sustainable inflation driven by wage growth. But she attributed current price increases to higher import costs, distinguishing between present price pressures and the shift she said the economy was approaching.

Katayama said the consumption tax cut and government payments were intended to cushion households against rising living costs, according to Reuters' coverage of her parliamentary remarks. The tax cut plan applies to food, according to a separate Reuters report on Japan's monetary policy outlook published before the minister's remarks. The plan would run for two years and was expected to take effect next April, according to the same report. The legislation needed to implement the cut had not secured parliamentary approval when that report was published. In answering the parliamentary question linking the tax cut and interest rate increases, the minister framed the government's measures as relief for households.

The Bank of Japan's September decision was approved by 7 votes to two, according to the bank's official statement. Board members Toichiro Asada and Ayano Sato opposed the policy change and were named in the statement as voting against the decision. In the same statement, the bank said it would continue raising interest rates and adjusting the degree of monetary accommodation in response to developments in the economy, prices and financial conditions. Its wording included economic activity and price movements, alongside financial conditions, as factors guiding the policy adjustment path. Reuters said in its interest rate outlook poll report that board members' opposition to September's increase briefly sent the yen lower at the time.

In a Reuters poll conducted in October, around 70% of participating economists expected an interest rate increase in the fourth quarter of 2026. That view was held by 54 economists out of 78 surveyed, according to the agency. Asked to identify the month of the next increase, around 80% of those who gave an answer on timing chose December. That percentage applied to respondents who specified a month for the increase, while the broader question concerned the prospect of a rate rise during the current quarter. Their forecasts followed September's decision, which included the bank's pledge to continue adjusting monetary accommodation in line with developments in activity, prices and financial conditions.

On prices, another Reuters poll forecast Japan's annual core inflation would rise to 2.1% in September. That compares with a reading of 1.7% in August, according to the agency's report on expectations for September's data. The core inflation measure used in the poll includes energy in the basket of prices whose annual change it tracks. It excludes fresh food prices, according to the index definition in the same report. Expectations for an acceleration in the index coincide with Katayama's comments on the role of import costs in current price increases and the economy's approach to wage-driven inflation.

National inflation data for September are scheduled for release on October 23, Japan time, according to the Statistics Bureau of Japan's calendar. The release is due at 23:30 GMT on October 22, according to Reuters' report on the upcoming data. The Bank of Japan will then hold its next meeting on October 29 and 30, according to its published monetary policy meeting schedule. The meeting's final day coincides with the release of preliminary Tokyo inflation data for October, scheduled for October 30, according to the Statistics Bureau. The December meeting, the month favoured by most respondents who specified the timing of an increase in the Reuters poll, is scheduled for December 17 and 18.