MNI BRIEF: BOJ Ups FY22 CPI to +2.9%, FY23 CPI To +1.6%

The Bank of Japan board upgraded its core consumer price index forecast for this fiscal year to rise of 2.9% from its 2.3% estimate made in July, while the forecast rise in inflation in fiscal 2023 was lifted to 1.6% from 1.4%, the BOJ’s Outlook Report released on Friday showed.

The upward revision of the fiscal 2023 price view prompted the BOJ to tweak its assessment on the outlook for inflation but it will not immediately cause policy adjustments as it is far from Bank's target of delivering 2% inflation in a sustainable and stable manner. (See MNI BRIEF: Japan's Oct Tokyo CPI Rises 3.4%; Three Decade High)

“With regard to the risk balance, risks to economic activity are skewed to the downside. Risks to prices are skewed to the upside.” The previous assessment was “risks to economic activity are skewed to the downside for the time being but are generally balanced thereafter.”

“Risks to prices are skewed to the upside for the time being but are generally balanced thereafter,” the BOJ said. The higher inflation view this fiscal year is due the weak yen and the pass-through of cost increases, rather than strong demand.

The board’s median forecasts for inflation rate in 2024 was revised to a rise of 1.6% from its estimate of 1.3% made in July.

The median forecast for real economic growth this fiscal year was revised down to 2% from 2.4% and the growth forecast for fiscal 2023 was revised down to 1.9% from 2%. The economic growth forecast in fiscal 2024 was revised up to 1.5% compared to 1.3%.

The core CPI will likely stay above 2% that the BOJ is targeting. Wage hikes next spring hold the key for Japan’s CPI moving closer to a sustainable rise and for the BOJ to close to the stage of considering policy adjustments.

The BOJ also made a passing reference to the weaker yen, which fell to a fresh 32-year low of JPY152 against the U.S. dollar last week. “It is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economy and prices,” the report said.