MNI: STATE OF PLAY: BOJ Board To Lift Growth, Inflation Views

The Bank of Japan board is expected to upgrade its median forecast for inflation above 1% as some companies move to raise prices and the outlook for the economy improves along with pandemic recovery, MNI understands.

Near-term downside risks to the economy have abated in the past quarter as pandemic curbs were lifted at the start of October and the growth outlook for the fiscal year starting April 1 is supported by a government stimulus package.

The median forecast for economic growth in fiscal 2022 is expected to be upgraded from +2.9% in October, with the government already forecasting 3.2% growth next fiscal year.

On inflation, some board members may cite crude oil prices gains not fully captured in the previous outlook and recent retail price gains and the yen’s fall and comment further that prices are moving up as a trend.

But the Jan. 17-18 BOJ board meeting will likely keep its long-term downside risks unchanged and avoid tweaks to the current easy policy, see: MNI INSIGHT: BOJ Sees 2% Price Target Nearer With Wages Key.

DOWNSIDE

On the downside, BOJ officials point to an uncertain path for the Omicron variant that could put a dent in company balance sheets, particularly for larger firms in the services industry and make it harder to obtain finance.

But they do not expect financing for smaller firms to worsen immediately as the BOJ in December extended measures to support those companies until the end of September this year.

Another concern for BOJ officials is the timing and pace of expected U.S. Fed rate hikes this year that could add pressure on the yen. BOJ officials also believe the Fed must carefully communicate its polices to avoid destabilising financial markets.