The Bank of Japan may lower its inflation forecast for the current fiscal year, acknowledging that price gains have undershot expectations despite an otherwise strengthening economy, sources with knowledge of the central bank's thinking said Friday.
BOJ policymakers are considering revising the April projection for consumer prices excluding volatile fresh foods to rise 1.3 percent in fiscal 2018 from the previous year at their policy-setting meeting next month, the sources said.
They are concerned whether a rise in core consumer prices would gain momentum after having increased at a slower pace in recent months and rose just 0.7 percent on-year in April and May.
The revision would be made to the median projection of the BOJ's decision-making Policy Board in a quarterly economic outlook report to be released after their July 30 to 31 meeting.
At the meeting, Governor Haruhiko Kuroda and the rest of the board are expected to vote to maintain current monetary easing measures, including purchasing government bonds to guide the benchmark 10-year yield near zero percent and a negative interest rate of minus 0.1 percent on some funds that financial institutions keep parked at the central bank.
The BOJ has kept an ultra-easy stance since Kuroda took office in April 2013. Since then, corporate profits have soared on the back of robust exports and unemployment has dropped to near the lowest level in 25 years.
But households have remained reluctant to loosen their purse strings amid tepid wage growth, making businesses wary of raising prices on goods and services lest they chase away frugal consumers.
The central bank could also cut its April forecast for core consumer prices to rise 1.8 percent in fiscal 2019. If there is a significant downgrade, it would effectively amount to a retraction of earlier assertions that it expects to reach its 2 percent target around that time.
The time frame, pushed back six times since Kuroda took office, was dropped from official communications in April because some market participants had been mistakenly viewing it as a hard deadline, he said.
© Kyodo News International, Inc., source Newswire