The Bank of Japan will raise its inflation forecast, although it will maintain the moderate bias

The Bank of Japan will raise its inflation forecast, although it will maintain the moderate bias

The Bank of Japan is expected to raise its inflation forecast but keep interest rates ultra-low at its policy meeting this month, multiple sources said, as recession fears in United States and rising input costs cloud prospects for its fragile economic recovery.

In a quarterly report scheduled for the July 20-21 meeting, the Bank of Japan is likely to project core consumer inflation slightly above its 2% target in the current fiscal year, which ends in March 2023, versus the current forecast of 1.9% published in April, the sources said.

It may also offer a more optimistic view of inflation expectations compared to the current assessment that they “increase mainly over the short-term horizon,” they say.

However, given that inflation remains much more modest than in Western countries, the Bank of Japan does not see the need to modify its dovish monetary policy, which makes it an exception in the global wave of central banks that interest rates are rising, say three sources close to the matter.

The Bank of Japan is expected to project core consumer inflation to slow to around 1% in fiscal 2023, as the effect of rising fuel costs wears off, the sources said.

The central bank is set to cut its economic growth forecast for this fiscal year from the current 2.9%, mostly reflecting the impact on output of supply disruptions caused by China’s strict COVID-19 lockdowns, they said.

Analysts polled by Reuters expect the Japanese economy to expand 2.2% and core inflation to hit 2.1% in the current fiscal year.

The latest surveys show that household and business inflation expectations are rising, with businesses expecting inflation to hover around 2% for the next several years.

But Bank of Japan Governor Haruhiko Kuroda has said this cost-driven inflation will not prompt the central bank to withdraw monetary stimulus unless wages and inflation expectations rise further.

At this month’s policy meeting, the Bank of Japan will keep its -0.1% target for short-term interest rates unchanged and the 10-year bond yield around 0%, as that focuses on supporting the lukewarm economy.

Melissa Galbraith
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.