BOJ considering raising inflation forecasts to near 2pc target
The Bank of Japan (BOJ) is considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, Nikkei reported.
The BOJ jolted markets this month by widening its 10-year yield cap range, a move officially aimed at straightening out bond market distortions but seen by some analysts as a prelude to the exit from its ultra-loose monetary easing.
Upgrades to the BOJ's inflation forecast would further fuel such speculation as Governor Haruhiko Kuroda has said the central bank could discuss the exit if achievement of its 2% inflation target in tandem with wage hikes comes into sight.
Citing people familiar with discussions at the central bank, Nikkei said the proposed changes would show the core consumer price index rising around 3% in fiscal 2022, between 1.6% and 2% in fiscal 2023, and nearly 2% in fiscal 2024.
The previous forecasts released in October were around 2.9%, 1.6% and 1.6%, respectively.
Japan's core consumer prices excluding fresh food items rose 3.7% in November, the highest since 1981, government data showed last week.
But Kuroda has dismissed the chance of a near-term interest rate hike, saying recent price rises were driven by one-off increases in raw material costs rather than strong demand.
The BOJ will release the latest quarterly growth and price outlook after its next policy meeting on Jan. 17-18.
Analysts, searching for any clues on a monetary policy shift, are also waiting to see if annual wage negotiations early next year will bring substantial pay hikes, or if the end of Kuroda's 10-year tenure in April leads to any revision to a 2013 policy accord between the BOJ and the government.
Earlier in December 2022, the Bank of Japan shocked markets with a surprise tweak to its bond yield controls that allows long-term interest rates to rise more, a move aimed at easing some of the costs of prolonged monetary stimulus.
Shares tanked, while the yen and bond yields spiked following the decision, which caught offguard investors who had expected the BOJ to make no changes to its yield curve control (YCC) until Governor Haruhiko Kuroda steps down in April.
In a move explained as aimed at breathing life back into a dormant bond market, the BOJ decided to allow the 10-year bond yield to move 50 basis points either side of its 0% target, wider than the previous 25 basis point band. But the central bank kept its yield target unchanged and said it will sharply increase bond buying, a sign the move was a fine-tuning of existing ultra-loose monetary policy rather than a withdrawal of stimulus.
"Maybe this is a baby step to test out the strategy and see what the market reaction is, and how much it's reacting," said Bart Wakabayashi, branch manager at State Street in Tokyo. "I think we're seeing the first toe in the water." As widely expected, the BOJ kept unchanged its YCC targets, set at -0.1% for short-term interest rates and around zero for the 10year bond yield, at a two-day policy meeting. The BOJ also said it would increase monthly purchases of Japanese government bonds (JGBs) to 9 trillion yen ($67.5 billion) per month from the previous 7.3 trillion yen. "Through these steps, the BOJ will aim to achieve its price target by enhancing the sustainability of monetary easing under this framework," the BOJ said in a statement, signalling that the move was aimed at prolonging YCC rather than phasing it out.