The Bank of Japan is expected to maintain its assessment that risks to inflation are skewed to the upside at its upcoming policy meeting, while indicating that those risks have not substantially increased over the last quarter, according to a report citing three people familiar with the central bank’s thinking. The decision will be part of the bank’s quarterly review of its long-term economic growth and price projections.
The Bank of Japan’s (BOJ) policy board is scheduled to release its updated quarterly outlook report, which includes forecasts for inflation and economic growth. According to the sources cited by Reuters, the board is anticipated to uphold its view that inflation has a greater chance of overshooting its 2% target than undershooting it. However, the report indicates that the bank is not expected to signal a significant build-up in these upward risks compared to its April assessment.
This stance comes amid close observation of several key economic indicators in Japan. One primary factor is the value of the yen, which has remained weak against other major currencies. A weaker yen increases the cost of imported goods, including fuel and raw materials, which can contribute to inflationary pressures.
Another critical element for the central bank is wage growth. The BOJ has consistently stated that sustainable wage increases are necessary to achieve stable and lasting 2% inflation. Recent data from the annual “shunto” spring wage negotiations showed major Japanese firms agreeing to the largest pay hikes in over three decades, a development the bank is monitoring to see if it translates into broader wage and price increases across the economy.
The upcoming meeting follows a landmark policy shift in March when the BOJ ended eight years of negative interest rates and other unconventional monetary easing measures. Since then, officials, including Governor Kazuo Ueda, have stated that future policy adjustments will be data-dependent. Governor Ueda has remarked publicly that the central bank would consider raising interest rates if underlying inflation, which strips out volatile fresh food and energy costs, accelerates as projected.
Financial markets and economists are focused on the BOJ’s quarterly report for any updated language on its economic outlook. While no change to the bank’s short-term policy rate is widely expected at this meeting, the inflation forecasts and the governor’s subsequent press conference will be scrutinized for clues regarding the timing of future interest rate hikes. The bank’s official policy statement and revised projections will provide a formal outline of its assessment of Japan’s economic trajectory.
