The Bank of Japan is considering revising upward its inflation outlook for the current fiscal year to next March, factoring in a bigger-than-expected impact from the yen's sharp drop and higher commodity prices, sources familiar with the matter said Monday.
When the BOJ holds its regular two-day policy meeting next week, it will likely forecast core consumer inflation to rise above 2.5 percent in fiscal 2022, up from 2.3 percent projected in July, the sources said.
The Japanese central bank is widely expected to maintain its ultralow rate policy as the pace of economic recovery will likely slow, and the core consumer price index, excluding volatile fresh food items, is seen as undershooting the BOJ's target of 2 percent in fiscal 2023 and 2024.
The growth outlook for fiscal 2022 may also be cut slightly from an expansion of 2.4 percent forecast in July when measured in gross domestic product, the sources said.
A fresh economic and price outlook report is scheduled for release at the end of the policy-setting meeting on Oct. 28. The inflation forecasts for fiscal 2023 and 2024 may also be revised slightly from 1.4 percent and 1.3 percent, respectively, the sources said.
Core CPI has stayed above 2 percent for the past five months to August when it jumped 2.8 percent from a year earlier. Higher energy, raw material and food prices are behind the increase, magnified by the yen's rapid weakening.
BOJ Governor Haruhiko Kuroda said Monday that consumer inflation would likely rise further toward the end of the year, but the pace will slow in fiscal 2023. Such prospects make it necessary for the central bank to maintain an ultralow rate policy, according to the governor.
The BOJ remains an outlier as its global peers have rushed to raise interest rates to curb stubbornly high inflation.
The widening interest rate gap between Japan and the United States has helped weaken the yen to a 32-year low versus the dollar. Japanese authorities have threatened to step in again to stop excessive volatility in the yen.
Japan has seen wholesale inflation above 9 percent this year, caused by a surge in import prices inflated by the weaker yen. More companies have been passing on increased costs to consumers by hiking retail prices.
Kuroda has said more robust wage growth is necessary to achieve the BOJ's inflation target stably and sustainably.
