BOJ may revise up next fiscal year's inflation forecast - sources

The Bank of Japan is expected to slightly revise up its inflation forecast for the fiscal year beginning in April on rising energy costs, though the new projection will still keep price growth below its 2% target, sources said.

The Bank of Japan is expected to slightly revise up its inflation forecast for the fiscal year beginning in April on rising energy costs, though the new projection will still keep price growth below its 2% target, sources said. With price hikes broadening on rising fuel and raw material costs, the board is likely to project inflation exceeding 1% in the next fiscal year, said five sources familiar with the BOJ's thinking.

That is up from the latest forecast made in October of core consumer inflation accelerating to 0.9% in fiscal 2022 after posting flat growth in the current fiscal ending in March. "While energy costs are the key drivers of rising inflation, there are signs more companies are starting to raise prices," one of the sources said. The sources spoke on the condition of anonymity as they are not authorised to speak publicly.

The BOJ will produce the new quarterly projections at its next policy meeting on Jan. 17-18. Easing supply constraints and an expected boost from the government's stimulus package may also lead to an upgrade in the BOJ's growth projection for next fiscal year, the sources said.

The nine-member board now expects the economy to grow by 2.9% next fiscal year after this year's 3.4% expansion. Such upward revisions likely will not prod the BOJ to whittle down its massive stimulus as inflation will remain distant from its 2% target, the sources said.