It is reported that the Bank of Japan is considering raising its inflation expectations to reflect the surge in rice prices and the weakening of the yen
Officials from the Bank of Japan may discuss raising inflation expectations at this month's policy meeting, primarily due to the surge in rice prices and the weakening of the yen. The current forecast is for the core price index to rise by 2% this fiscal year, 1.9% next year, and 2.1% the year after. If expectations are raised, it could support the argument for interest rate hikes. The market generally expects the necessity of interest rate hikes to be discussed at the meeting on January 23rd to 24th. Although the inflation trend is in line with expectations, officials will carefully assess the data before deciding whether to raise the benchmark interest rate
According to informed sources, the Bank of Japan officials may discuss the issue of raising inflation expectations at their policy meeting later this month, although no interest rate decision has been made yet.
The sources indicated that officials might discuss raising the inflation expectations excluding fresh food and energy for the current fiscal year and the next fiscal year. This is mainly due to the recent surge in rice prices and the depreciation of the yen since the last outlook report was released in October of last year.
The Bank of Japan currently expects the core consumer price index to rise by 2% this fiscal year, 1.9% next year, and 2.1% the year after. This adjustment would keep the forecast at or above the critical level of 2%, which could support the argument for interest rate hikes if the Bank of Japan decides to take action.
The market generally expects the Bank of Japan to discuss the necessity of raising interest rates at the upcoming policy meeting scheduled for January 23-24.
Bank of Japan Governor Kazuo Ueda has emphasized two key factors in deciding whether to raise interest rates: the momentum of spring wage increases and the uncertainty of U.S. economic policy following the new Trump administration. This indicates that the Bank of Japan will not raise rates solely based on higher inflation forecasts.
The aforementioned sources stated that while authorities still believe inflation trends are broadly in line with their expectations, they will decide whether to raise the benchmark interest rate after carefully assessing data and information before announcing a policy decision.
It is understood that rice prices have surged significantly since mid-last year due to various factors such as poor harvests and tourism demand. In the latest government report from November, rice prices rose by 63.6%, the highest figure since 1971.
Bank of Japan officials believe that Japan has made progress in achieving the 2% stable inflation target as companies pass labor costs onto prices. The sources indicated that they continue to believe that price growth will remain consistent with the target in the latter half of the three-year forecast period ending in March 2027.
Private economists' estimates of inflation are higher than those of the central bank. A survey conducted last month showed that analysts expect inflation to rise by 2.2% this fiscal year and by 2% next fiscal year.
Regarding the inflation outlook excluding fresh food, Bank of Japan officials believe that inflation will slightly decline in a few months due to the government's restoration of energy subsidies by the end of fiscal year 2024. According to the sources, this government measure may push inflation higher next year