TOKYO: In light of recent dismal data on prices, the Bank of Japan is expected to discuss cutting its inflation forecasts at its next monetary policy meeting, scheduled for July 28 and 29. The central bank will possibly lower its inflation projection for this fiscal year to zero to 0.5 percent, down from 0.5 percent. After the next policy review, the BOJ is scheduled to release updates to its quarterly Outlook for Economic Activity and Prices, which was semiannual before this year.
Government data released Friday showed that core consumer prices, excluding fresh food prices, dropped 0.4 percent in May from a year earlier, marking their largest fall since April 2013, when the BOJ launched a massive easing campaign. In a BOJ survey released Monday, the average inflation forecast by companies one year later fell 0.1 percentage point from the previous survey three months before to 0.7 percent.
Inflation appears to be losing upward momentum due to smaller pay hikes by companies in shunto spring labor-management negotiations, as well as the yen’s appreciation against other major currencies following Britain’s decision to quit the European Union. The BOJ is also expected to consider cutting its fiscal 2017 inflation estimate from 1.7 percent and pushing back the anticipated date that inflation will reach the bank’s target of 2 percent, currently seen in fiscal 2017.
The BOJ will contemplate a hike in its domestic economic growth projection for fiscal 2017 from 0.1 percent, following Prime Minister Shinzo Abe’s decision last month to postpone the planned consumption tax hike from 8 percent to 10 percent from April 2017 to October 2019. The BOJ will decide whether to take additional monetary easing steps after carefully examining trends on prices. There appears to be limited room for further loosening monetary conditions, given considerably expanded government bond purchases by the BOJ, as well as frustration among commercial banks with the bank’s negative interest policy.
