Underlying inflation has moved towards 2% and is gradually becoming embedded at that level, the BOJ says.

The Bank of Japan has stated that underlying inflation is moving toward its 2% target and is gradually becoming entrenched at that level, a formulation that signals growing confidence in sustained price pressures rather than a temporary spike. For Japanese markets, this shifts the transmission channel toward inflation repricing, which tends to lift expectations for a continued normalization of monetary policy, including further rate increases and an erosion of the ultra-loose policy framework that has long suppressed domestic yields. The yen is the most directly exposed currency, since a narrowing rate differential with the United States and other major economies typically supports the currency, while Japanese government bonds face upward pressure on yields as the market reassesses the terminal rate. Equity sectors sensitive to financing costs, including real estate and utilities, could see relative underperformance, whereas exporters may face offsetting currency headwinds. Traders should watch the next Tokyo national CPI release and the BOJ's upcoming policy meeting outlook report, which will provide the clearest test of whether the central bank's assessment of entrenched inflatio

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