BOJ to offer more upbeat view on economy, but may cut price forecast

[TOKYO] The Bank of Japan is set to upgrade its economic assessment as early as next week to signal its growing conviction that the recovery is gathering momentum, people familiar with its thinking told Reuters, reinforcing expectations that its next move would be to tighten monetary policy.

But inflation remains stubbornly weak and may force the BOJ to cut its price forecast at a quarterly review of its projections in July, the people said.

"Almost all components of the economy are performing well. There's no doubt the economy is in pretty good shape," one of the people said.

"Inflation, on the other hand, has been underperforming," the person added, a view echoed by two other sources.

At the previous policy meeting in April, the BOJ offered the most optimistic assessment in nine years to say the economy has been "turning toward a moderate expansion".

The central bank will brighten the language to describe the economy as "expanding moderately," either at a rate review on June 15-16 or at the July meeting, the people said.

With wage growth tame, however, the BOJ may cut in July its inflation forecast for the current fiscal year, they said.

The central bank now projects core consumer inflation to hit 1.4 per cent in the year ending March 2018 and 1.7 per cent in fiscal 2018.

Of the eight policy-setting meetings held each year, the BOJ reviews its long-term growth and price forecasts at four of them including one in July. It also issues a verbal assessment of the state of the economy and inflation at all eight meetings.

REUTERS