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MNI STATE OF PLAY: BOJ To Up GDP View, Cut CPI; Policy On Hold


BOJ set to push growth outlook higher, but policy settings seen unchanged.

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The Bank of Japan is set to revise its growth forecast for the current fiscal year higher when it meets this week, as it sees upside from the stronger global economy, fiscal stimulus measures at home and abroad, all alongside solid capital.

With the prospect of higher growth in coming quarters, the BOJ will likely leave policy settings unchanged, having decided back in March to clarify its tolerance band for 10-year JGBs to trade either side of the zero percent target. However, the post-meet statement will include the latest medium growth and inflation forecasts for the period through fiscal year 2023.

Although growth projections will be raised, the BOJ will likely pare back expectations to a degree as output in the auto sector is still struggling on the back of the extended shortage of semiconductors globally.

The International Monetary Fund is now forecasting higher global growth this year (+6.0% vs. January's +5.5%) and, if correct, that will boost Japan's exports more than BOJ officials expected in January, which will help push Japan's growth this FY to 3.9%.


The BOJ board will likely stand pat on monetary policy at its two-day policy-setting meeting ending April 27, releasing the medium-term economic growth and inflation rate forecast through fiscal 2023.

Bank officials will note that downward pressure on the economy has dissipated somewhat since the March meeting, as the weakness in face-to-face services hasn't yet spilled over into other parts of the economy.

The Bank will also address the inflation outlook. Phone companies are set to reduce the costs of mobile contracts and that will have a negative drag on CPI. However, policymakers at the BOJ now see little impact on overall inflation levels, as the impact of lower energy costs a year ago are starting to wash through the data.


As for inflation forecast, the BOJ board will somewhat incorporate the impact of lower phone charges into the outlook for prices based on a certain prerequisite condition.

Despite that, the BOJ is set to revise the median inflation forecast for the current fiscal year modestly lower from January's 0.5%.

The median inflation forecast in fiscal 2023, Governor Haruhiko Kuroda's current five-year term ends, is expected to be around 1%, still well shy of the 2% target level.