MNI STATE OF PLAY: BOJ Policy To Highlight Downside Econ Risks

Near-term heightened downside risks will see the Bank of Japan board likely lower its economic assessment in next week's policy review but keep current easy policy as it navigates the prospect of inflation breaching 2% on rising energy costs, MNI understands.

Policy makers however will likely maintain a recovery scenario later this year as the BOJ awaits fresh economic data and monitors the functioning in financial markets ahead of the March-end fiscal year.

Imported energy costs have surged since Moscow's invasion of Ukraine, putting pressure on corporate costs and consumer sentiment and spending, see: MNI INSIGHT: BOJ Grows Concerned On Energy-Driven Price Surge.

STILL ASSESSING

In specific language, the BOJ will likely downgrade its previous view of “a pick-up in Japan’s economy has become evident” and “a pick-up in private consumption has become evident.” But BOJ economists are still gathering information to gauge how corporate and household activities have been hit by higher costs and how the inflation rate will evolve in or after April.

Of key interest is whether higher input costs for corporates will be passed onto the retail level, and whether wages will rise, in April.

The March 17-18 meeting will also follow the U.S. Fed which is expected to announce a 25 basis point rate hike on March 16.

APRIL MEETING

Bank officials are focused on reports from the quarterly branch managers’ meeting in mid-April and the results of the March Tankan business sentiment survey due April 1 before the April 27-28 meeting, where more formal steps could be taken on an economic outlook downgrade.

The base for the impact of cheaper mobile phone charges wanes in April and businesses are expected to review retail prices. The reaction of households to these changes will drive consumer spending and inflation. But BOJ officials suggest it is still premature to factor in the impact of a slowing global economy on exports and production.