BoJ revised up inflation outlook

Japan's central bank revised its inflation forecast on Tuesday and adjusted its view on price risks, while leaving its monetary easing policy in place in response to lingering pandemic uncertainty.

Japan's inflation is relatively feeble and still far below the two percent target seen as necessary to turbocharge the world's third largest economy, as prices rise swiftly in other economies.

The central bank forecasts inflation of 1.1 percent for the fiscal year to March 2023, up from its previous forecast of 0.9 percent, in a quarterly report on prices and economy.

The forecast for the fiscal year to March 2024 was revised up to 1.1 percent from 1.0 percent, leaving the projection for the current year unchanged.

The central bank said that the consumer price index for the CPI for fiscal 2022 is expected to increase, mainly due to a rise in commodity prices and the pass-through of that rise to consumer prices.

The previous assessment of risk was adjusted as skewed to the downside, adjusting its previous assessment of risk to make sure that the risks to prices are balanced. The growth forecast for the current fiscal year was revised down by the BoJ to 2.8 percent from the previous 3.4 percent.

It now sees a slower-than-expected 3.8 percent growth in the fiscal year to March 2023, with a slight downward revision of 1.1 percent growth in the year to March 2024.

It added that the impact of Covid 19 has skewed economic activity to the downside for the time being.

The central bank maintained its longstanding goal of two-percent inflation, which remains far off despite years of efforts and prices rising globally.

The inflation target is still far away, and it is hard to imagine a change in the BoJ's policy stance, even with the latest upward revision in prices, said Masamichi Adachi of UBS in a note ahead of the Tuesday decision.

With no Board member expecting inflation to come close to two percent of the target for the foreseeable future, talk of policy tightening is premature, said Marcel Thieliant, senior Japan economist at Capital Economics.

He stated that we are even more pessimistic than the Bank about the medium-term outlook for inflation.

We're sticking to our belief that the Bank will keep interest rates low for the foreseeable future.