MNI POLICY: BOJ Board’s FY25 Core CPI Outlook Near 2%

The Bank of Japan’s first median core inflation forecast for fiscal 2025 is likely to place it near its 2% target, feeding into its considerations as new Governor Kazuo Ueda examines the possibility of tweaking yield curve control policy but not making any immediate move more likely, MNI understands.

The 2025 inflation forecast could still be revised lower later this year if conditions deteriorate in the second half of 2023. It could also change depending on whether the government extends utilities subsidies set to end in September and electricity companies receive approval to raise charges as early as June.

The BOJ will also revise up the median inflation forecast for fiscal 2024 from January’s 1.8% due to wage increases when it publishes its Outlook Report on April 28, MNI understands. Private economists, who take a more pessimistic view on wages, see core inflation at only 1.43% in 2024.

The Bank's January Outlook Report held core CPI for the 2023 fiscal year at 1.6%, but lifted the 2024 forecast from 1.6%.

Ueda has said he hopes the 2% target will be achieved by the end of his five-year term, but has indicated that he will consult with his board over possible modifications to yield curve control in order to mitigate negative side effects in markets. (See MNI POLICY: US Recession Could Close BOJ Tweak Window)

The Bank's median forecast for core-core CPI excluding fresh food and energy in fiscal 2025 is expected to land near 1.7%. Former BOJ chief economists have said the 2024 core core forecast of 1.6% in the last Outlook report showed the BOJ does not believe it can achieve the 2% price target.