May 20, 2022

The Bank of Japan is set to raise its inflation forecast for the fiscal year to almost 2% at this month’s policy in response to rising prices, according to three sources cited by Reuters.

Analysts had projected inflation to hit 1.6% in 2022, and so far appear to be pretty correct in their position. The sources said that the bank will likely increase its core consumer inflation forecast to above 1.5% and possibly as high as 1.9% when it releases its latest quarterly projections later this month.

Japan’s economic recovery following the effects of the Covid pandemic is delicate, and the sources assured that BOJ policy decisions moving forward will be made with supporting that recovery in mind.

“Consumer inflation may accelerate to near 2% this fiscal year, but mostly due to rising fuel and food costs,” one of the sources said, adding that it was “too early to withdraw stimulus because wage growth is slow and the economy is still weak”.

Two other sources expressed the same view according to the Reuters report.

The sources also expect this year’s growth forecast to be reduced, with the rising cost of raw materials having an impact on trade and consumption. The BOJ’s most recent forecast in January projected growth of 3.8% in 2022, but was made prior to Russia’s invasion of Ukraine and is likely to now be heavily revised.

In polling conducted since Vladimir Putin’s decision to launch a military assault, analysts projected 2.6% growth for the Japanese economy through the fiscal year. It is understood the the revised projection from the bank is likely to be close to this figure.