BOJ Mulls Sharp Increase in 2023 Inflation Outlook

The Bank of Japan is considering boosting its inflation forecast for the current fiscal year ending in March to roughly 3% from 2.5% now, according to individuals close to the situation.

The higher revision is intended to reflect price increases that have been expanding more than predicted, as well as rising crude oil costs, with the yen’s devaluation also increasing import prices, according to Japanese news agency “Kyodo.”

The BOJ is slated to deliver a new economic and price outlook report at the completion of a two-day policy meeting until Oct. 31.

The Policy Board will evaluate the inflation forecast and the necessity of maintaining ultralow rates at its forthcoming policy-setting meeting.

In the latest Tankan business survey, issued in early October, the index for retail prices remained high for both big manufacturers and nonmanufacturers, indicating that enterprises have been boosting prices to pass on greater expenses.

The Bank of Japan eased its hold on long-term interest rates in July, enabling 10-year Japanese government bond yields to approach 1.0 percent.

The change was intended in part to prepare for inflationary concerns, allowing bond rates to better reflect economic fundamentals.

Governor Kazuo Ueda said at the time that the decision was also taken to manage volatility in foreign exchange markets. He has, however, emphasized the need for maintaining monetary easing, ruling out a rate rise in the foreseeable future.

According to current projections, core consumer prices, excluding volatile fresh food items, would fall short of the BOJ’s 2% objective in fiscal 2024 and 2025.

The Bank of Japan officials will assess the impact of the fiscal 2023 upward adjustment over the next two years.

The bank has emphasized that the inflation target will not be met until wage growth is sustained.