The Bank of Japan is likely to raise its inflation forecast for the current financial year to close to 2% at this month’s meeting as global inflation increases energy and food costs, three knowledgeable sources said. broadcasts Reuters.
The increased forecast will bring inflation closer to 2% and the central bank is expected to emphasize its determination to maintain extremely loose monetary policy to support the fragile economic recovery, the sources said.
“Inflation may accelerate to close to 2% this fiscal year, but mainly due to rising fuel and food costs,” said one source. “It’s too early to withdraw the incentives, because wage growth is slow and the economy is still weak.”
In the new quarterly forecasts to be released at the meeting on April 27-28, the BOJ is likely to increase its inflation forecast for the current financial year by March 2023 to more than 1.5% from its current estimate of 1 , 1%.
The board is also expected to cut its forecast for growth this fiscal year, sources said, as rising cost of raw materials caused by the war in Ukraine hurts world trade and domestic consumption.
The BOJ’s current forecast, made in January, predicts that the economy will grow by 3.8% this fiscal year, much faster than the 2.6% growth forecast by a Reuters poll.
Prolonged supply constraints, low consumption and the state created by global inflation have called into question the BOJ’s view that the economy is recovering and heading for a steady recovery.
While the BOJ still expects the economy to recover, it is likely to warn of growing risks in the outlook as the crisis in Ukraine weighs on global and domestic demand, sources said.
Analysts say Japanese inflation is unlikely to pick up momentum in countries such as the United States, where rising prices have been accompanied by strong wage growth, forcing central banks to plan for aggressive rate hikes.
The BOJ’s new forecasts are likely to show that inflation will slow again to around 1% in fiscal year 2023, as the impact of recent fuel price hikes will weaken, sources said.
Source: Capital
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