MNI POLICY: BOJ Set For Modest Lift To FY21 Growth Forecast

The Bank of Japan will revise higher its median forecast for real economic growth in fiscal 2021 from October's +3.6% as it incorporates the impact of stimulus on the economy into its outlook, MNI understands, although any upward revision will be capped by concerns over the fallout from the second state of emergency in many parts of the country.

Although the BOJ accepts there will be some downward pressure on the economy in coming weeks, it will likely be less severe than the hit from the stricter lockdown seen in 2020, even though the outlook for private consumption remains cloudy with the length of the current restrictions still unknown.

Many board members expected economic activity to pick up even with the virus continuing to circulate, but the sharp uptick in the infection rate has been a surprise.

Prime Minister Yoshihide Suga declared a state of emergency on Jan 7, asking Tokyo-area bars and restaurants to close early and instructing residents to stay home at night. The emergency -- which covers Tokyo and the surrounding prefectures of Kanagawa, Saitama and Chiba -- took effect at midnight on Jan. 7 and will run through Feb. 7.

SECOND-ROUND EFFECTS

The service sector, in particular the hospitality sector, will undoubtedly bare the brunt of the restrictions and whether the lockdown lasts longer than Feb 7 will depend entirely on how the virus develops.

Bank officials see no need to amend their view that the inflation rate will remain weak for the time being and downward pressure on prices will increase due to the Go To Travel campaign subsidy, if it resumes.

But weak price moves will hit bottom around April and the underlying trend will start to pick up.

The BOJ board will review the medium-term outlook for economic growth and the inflation rate at the two-day policy-setting meeting ending on Jan. 21.