BOJ to discuss raising inflation forecast for FY24 to 2% or more: sources
THE Bank of Japan (BOJ) is likely to discuss raising its inflation projection for fiscal year 2023 and 2024 at its policy meeting later this month, extending the period in which it sees prices reaching or exceeding its 2 per cent goal, according to people familiar with the matter.
BOJ officials see the bank’s projection for its key inflation gauge – consumer prices excluding fresh food – likely being revised higher to 2 per cent or more for the year starting in April, according to the people. That’s up from the 1.9 per cent forecast made in July, and it would mean the central bank sees inflation at or above 2 per cent for three consecutive years, a development that could fuel speculation over policy normalisation. The price forecast for this fiscal year is likely to be increased closer to 3 per cent from the current 2.5 per cent, the people said.
Following news of the central bank price view, the yen briefly strengthened to 148.84 against the US dollar from around 149.70, before it swiftly fell back to around 149.50. It traded around 149.70 on Wednesday (Oct 18) morning after coming close to 150 again overnight.
The central bank is mulling its price views amid speculation over the future of monetary policy and heightened focus on the yen, as Japan’s currency remains near levels where authorities intervened to support it a year ago. In July, price projection revisions were accompanied by adjustments to the BOJ’s yield curve control programme.
On Wednesday, Japan’s benchmark 10-year yield rose to the highest level since 2013 following a jump in US yields, amid ongoing speculation that the central bank may adjust its monetary policy further. The BOJ announced an unscheduled bond buying operation on Wednesday, though bond futures held their drop after the announcement.
If the BOJ were to loosen its grip on long-term yields further, that could have ripple effects across a range of assets across the globe, although the central bank is likely to deny that such a move is a step toward policy normalisation.
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Officials view the weakening yen and higher oil prices as factors that add to existing inflationary pressures, according to the people familiar with the matter. That’s after Japanese businesses have passed on more costs to consumers than the bank was previously expecting.
While Prime Minister Fumio Kishida’s decision to extend government programmes to contain energy prices will exert a drag on inflation this year, it will be a factor that will boost price growth in the following year, the people noted.
Still, officials don’t see the BOJ’s stable 2 per cent inflation goal as currently within sight, the people said. The price growth outlook for fiscal 2025 is likely to remain around the current forecast of 1.6 per cent, they added.
So far the BOJ has emphasised the need for wage growth to accompany inflation before the central bank can say it has achieved its stable price goals. Yet, real pay in Japan has fallen for 17 consecutive months through August, and nominal wage growth has also remained below 2 per cent in recent months.
The BOJ is set to release its quarterly economic projections on Oct 31, together with its policy statement. REUTERS
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