MNI POLICY: Unchanged Core-Core CPI View To Stay BOJ Rate Hike

The Bank of Japan board’s median forecasts for the core-core consumer price index will likely remain unchanged from April's predictions when policymakers meet July 30-31, making a rate hike this month less likely, MNI understands.

While government subsidies to lower energy and gas costs, as well as gasoline prices, have made it difficult for bank officials to gauge the underlying inflation trend, they have not found significant evidence that will prompt policymakers to revise their inflation view significantly.

The BOJ in April expected core-core CPI to rise 1.9% this fiscal year, 1.9% in fiscal 2025 and 2.1% in fiscal 2026.

Bank officials noted underlying inflation has not strengthened sufficiently to achieve the BOJ’s 2% price target and that, while mid- to long-term inflation expectations have risen steadily, they have not accelerated despite the weaker yen. Wages and corporate price-setting behaviour, meanwhile, have strengthened in line with the BOJ's April expectations.

But policymakers want to examine the impact of stronger-than-expected corporate price revisions in April and the weak yen on inflation. They are focused on whether wages at smaller firms will rise as much as expected, and how it will impact price-setting, while sluggish private consumption and its affect on price hikes has also fuelled concern. (See MNI POLICY: Consumption Risk Could Make BOJ Hike Harder)

MNI reported this week Governor Kazuo Ueda wanted further insight into the U.S. economy before increasing rates. (See MNI POLICY: Ueda's US Concerns To Impede BOJ July Rate Hike)