The Bank of Japan is making final arrangements to lower its forecast for the inflation rate this fiscal year from 1.3 percent to about 1.0 percent, while lowering its prediction for fiscal 2019 from 1.8 percent to the mid-1 percent range, The Yomiuri Shimbun has learned.
The revisions will be adopted at the central bank's two-day Monetary Policy Meeting of the Policy Board to be held on Monday and Tuesday. Due to difficulties achieving its 2 percent inflation target at an early date, the central bank intends to continue its large-scale monetary easing policy, sources said.
After the meeting, the bank will announce its quarterly Outlook for Economic Activity and Prices report, which will present the outlook for the inflation rate from fiscal 2018 through fiscal 2020. The benchmarks reported in the outlook heavily influence the central bank's monetary policy, which is aimed at ending deflation.
The figures for the outlook represent the median forecast among the nine members of the board that decide monetary policy, including Gov. Haruhiko Kuroda.
The growth of the consumer price index (CPI, see below), which excludes volatile fresh food prices, has lagged since spring, with the CPI in June rising only 0.8 percent from a year earlier. The number of board members who believe the inflation outlook should be revised downward has increased, as prices have not risen as expected, putting inflation targets further out of reach.
The Japanese economy has reached a state of almost full employment, with the unemployment rate at a historically low level. Companies have also posted strong results. The board members and other experts have assessed that prices have not risen as expected due to structural factors.
In its quarterly report, the central bank will likely cite structural factors as a reason for companies' reluctance to raise prices, as consumers react very negatively to price increases during long-term deflationary phases. It will also likely note that social structural changes, such as the growing number of female and elderly workers, and companies' investment in labor saving, have restrained wage increases. Moreover, the central bank will likely cite accelerating price competition driven by the expansion of online shopping as a new factor.
Yet while the inflation outlook will be lowered, the board members broadly believe that excluding structural factors, the nation's economy will not lose the momentum needed to achieve a price increase typical of an economic recovery.
The members will likely not announce additional monetary easing policies to support prices, the sources said.
--CPI
The index announced each month by the Internal Affairs and Communications Ministry that surveys representative items selected based on the results of its household budget survey. The Bank of Japan announces the outlook for inflation rates based on the index, which excludes volatile fresh food prices influenced by the weather, to capture basic price movement trends. Another version of the index excludes the costs of energy, such as crude oil, that fluctuate in line with market conditions. The index for June, excluding fresh food and energy costs, rose 0.2 percent.
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