BOJ urged to drop fuzzy inflation gauge

Post by : Monika

Photo: Reuters

Japan’s central bank, the Bank of Japan (BOJ), is under rising pressure to stop using an inflation measure that many people find confusing. Both insiders at the bank and experts outside are calling for a clearer approach, especially as prices continue to rise across the country.

 What’s the Current Problem?
The BOJ uses a special measurement called "underlying inflation" to guide its interest rate decisions. This measure excludes things like energy and food prices, which can change a lot day-to-day, and focuses instead on long-term trends such as wage growth and consumer demand.

But there’s a catch: everyday people and even some economists say this number is too abstract and hard to understand. Meanwhile, the more familiar inflation numbers—like headline inflation, which includes all prices—are already above the bank’s target.

In June 2025, Japan’s headline inflation hit 3.3%, while the BOJ’s target is just 2%. Even the core inflation rate (which excludes only fresh food) has stayed over 2% for a long time. Still, the BOJ is sticking to its cautious stance, pointing to its “underlying inflation” metric, which it says is still under 2%.

 Internal Debate Within the BOJ
Some people inside the BOJ think it’s time to be more honest and direct. One board member recently said the bank should focus on real-world price changes and how consumers and companies are feeling the pressure.

This member suggested that it would be better to communicate clearly about actual inflation, supply-demand gaps, and how people expect prices to change in the future, rather than hiding behind a technical formula.

Other board members have also pointed out that food prices have gone up more than 8%, which is hurting household budgets. These officials want the BOJ to show that it’s ready to act, instead of continuing with a “wait and see” approach.

 Pressure From the Japanese Government
It’s not just the BOJ officials raising concerns. The Council on Economic and Fiscal Policy, a major government advisory group, has also raised red flags.

One member warned that Japan's monetary policy may already be too slow to respond to inflation. That’s a concern because if the BOJ waits too long, prices might get even harder to control—hurting families, small businesses, and the economy overall.

 Why It Matters to Everyone
Inflation affects everyone’s daily life. Higher prices mean it costs more to buy groceries, pay electricity bills, or fill up your car. And when prices keep rising, people may start expecting them to keep going up, which can make the problem worse.

If the central bank isn’t clear about what it’s doing, it causes uncertainty. People don’t know if rates will go up, how the economy will react, or how to make financial plans. That’s why so many voices are calling on the BOJ to be more transparent and simple in its messaging.

 Recent Moves by the BOJ
Back in January 2025, the BOJ took its first big step in years: it raised its short-term interest rate to 0.5%, ending more than a decade of nearly zero interest rates.

The bank also started to reduce the amount of government bonds it buys—a process called tapering. However, it has slowed this process, pointing to risks like trade tensions and global instability.

 What the Numbers Are Saying
Wholesale inflation (the prices companies pay to make goods) dropped to 2.6% in July, down from 2.9% in June.

But food inflation stayed high at 4.2%, continuing to hurt household budgets.

This mix of data is making it harder for the BOJ to stick with its cautious approach. Some people feel the bank is trying to look past the obvious signs that inflation is a serious concern.

 The Problem With “Underlying Inflation”
The idea of using underlying inflation is to focus on stable, long-term changes—not short-term spikes. But critics argue that this measure is too technical and doesn’t reflect what people are actually feeling in their daily lives.

Some also say it creates a gap between what the central bank is saying and what people are experiencing, leading to confusion and mistrust.

In other words, if the public can’t understand how the BOJ is making decisions, then it’s harder for them to trust the bank’s direction or plan for the future.

 What Might Happen Next?
There are signs that the BOJ could change its strategy in the coming months. The next key meeting is in October, and some experts think this could be the moment when the bank stops talking about underlying inflation and gives clearer signals about whether it plans to raise interest rates again.

If inflation continues to stay high, the pressure on the BOJ to act more boldly will likely grow even more.

Topic  Details

• Inflation Measures  BOJ uses “underlying inflation,” but critics call it vague
• Headline Inflation 3.3% in June—well above the 2% target
• Interest Rate Hike Raised to 0.5% in Jan 2025
• Food Inflation Up over 8%—a major concern for households
• Government Pressure Council says BOJ may be acting too slowly
• Next Key Date October 2025 meeting could change tone or approach

The Bank of Japan has long been known for moving slowly and carefully, especially when it comes to interest rates. But with rising food costs and inflation staying high, the pressure is building.

Whether it’s from inside the bank, government advisors, or everyday people, there’s a growing call for the BOJ to stop using complicated terms and start communicating clearly and simply. It may soon need to make bold decisions to show it’s serious about fighting inflation.

Bank of Japan (BOJ)