By Megumi Fujikawa

TOKYO--The Bank of Japan raised its price forecast slightly amid pandemic-related supply shortages, although it still expects its 2% inflation target won't be reached for at least the next two years.

In its quarterly outlook released Tuesday, the bank's policy board projected inflation would increase 1.1% in the year ending March 2023 and 1.1% in the following year, up from previous projections for 0.9% and 1.0%, respectively.

For the current fiscal year ending in March, the bank expects prices to be flat.

The Covid-19 pandemic has caused a shortage of goods and materials amid a global recovery in consumer demand. In the U.S., annual inflation hit 7% in December, the fastest pace in four decades.

In Japan, companies are struggling to pass on higher costs to price-sensitive consumers, who mostly aren't seeing significant increases in wages. While corporate goods prices jumped 9.2% in November and 8.5% in December from a year earlier, overall consumer prices increased just 0.6% in November. December consumer-price numbers haven't been released yet.

The bank also forecast the Japanese economy would expand 2.8% in the current fiscal year, a downgrade from its previous projection of 3.4%. It cited supply-side constraints for the revision. The BOJ said it expected 3.8% growth in the year ending March 2023 and 1.1% in the following year, compared with previous projections of 2.9% and 1.3% growth, respectively.

Also on Tuesday, the central bank maintained its target for short-term interest rates at minus 0.1% and its target for the 10-year Japanese government bond yield at around zero.


Write to Megumi Fujikawa at megumi.fujikawa@wsj.com


(END) Dow Jones Newswires

01-17-22 2217ET