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MNI (Tokyo)

An upward revision to Japan's fiscal 2023 inflation forecast underplays significant downside risks, a former BOJ chief economist and executive director told MNI, adding that there was little prospect of the central bank exiting easy policy any time soon.

“There is a big downside risk to prices in fiscal 2023,” Kazuo Momma, now executive economist at Mizuho Research and Technologies, told MNI, adding that it is unlikely that the BOJ will start to debating an (exit strategy) from easy policy as its 2% price target will likely not be achieved by April 2023, Momma said.

“I think the BOJ can use yield curve control for one hundred years. The BOJ will respond to its side-effects, if necessary, although I cannot predict what these might be. But there is no way that the BOJ debates an exit strategy of easy policy,” he said.

The BOJ board’s (median forecast) for inflation in the fiscal year starting April 2023 is 1.1%, up slightly from October's view.

Momma said the price environment will likely return to normal conditions.

“Under normal conditions, it is unlikely that the core inflation rate rises above 1%. Frankly thinking, the key inflation rate in fiscal 2023 is expected to be around 0.5% or a range of 0.5% to 1.0%.”

Japan’s core CPI has not risen as high as 1% in the past 30 years except in response to consumption tax hikes or surges in international commodity prices, Momma pointed out.

“The BOJ’s forecast means that a 1% level price rise, which wasn’t observed for the past 30 years, will happen in fiscal 2023. But the possibility is low,” Momma said.


While the BOJ is (unlikely to shift its monetary stance), he did not rule out tweaks or adjustments to its framework to cope with the side-effects of a prolonged easy monetary conditions. There has already been some work done on the yield-curve control (YCC) policy of a 0.25% plus or minus (band for the benchmark bond.)

“The focus is whether the BOJ under the new governor will face the necessity of further mitigating the side-effects. But I cannot predict what kind of side-effects will emerge or be debated at that time,” Momma said.

He added there is not a “blind spot” in the YCC implementation and exchange traded-fund purchases and the negative interest rate policy because the BOJ has already adjusted.


At the same time, prices for fiscal 2022 have upside potential, (see: MNI INSIGHT: BOJ Sees 2% Price Target Nearer With Wages Key.)

“There is big upside risk to prices in fiscal 2022 and the core consumer price index is expected to temporarily rise to close to 2% or top 2% in the first half of the next fiscal year,” he said.

The Jan. 18 (BOJ Outlook) said “risks to prices are generally balanced”, a change from earlier language of tilted downwards, indicating the possibility of inflation outstripping projections.

MNI Tokyo Bureau | +81 90-2175-0040 |
MNI Tokyo Bureau | +81 90-2175-0040 |

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