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Preview: BOJ may concede delay in hitting price goal, but hold off on easing

Reuters  |  TOKYO 

By Leika Kihara

TOKYO (Reuters) - The of is set to raise its economic growth forecasts but cut its rosy outlook next week, sources say, reinforcing expectations it will lag well behind major global central banks in dialing back its massive stimulus programme.

The is expected to hold off from expanding stimulus at its two-day rate review ending next Thursday, as robust exports and private consumption heighten prospects of a moderate economic expansion.

The central bank's nine-member board is split between those who expect a strengthening to start pushing up inflation, and those who believe will remain subdued well into next year given Japan's sticky deflationary mindset.

If the pessimists prevail, the may push back again the timing for hitting its ambitious 2 percent target, sources familiar with its thinking say, in a fresh blow to Governor Haruhiko Kuroda's radical monetary experiment aimed at putting a sustained end to deflation.

"It's taking longer than expected for to pick up," one of the sources said. "Sizable cuts in the price forecasts may be inevitable," another source said, adding a delay in the projected timing for hitting the target "can't be ruled out."

Two other sources expressed a similar view, warning that the underlying weakness in could hamper the BOJ's efforts to change public perceptions that deflation will persist.

Kuroda is likely to remind markets of the BOJ's resolve to maintain its ultra-easy policy until is sustainably above 2 percent.

Joachim Fels, global economic adviser at PIMCO, expects the to maintain its yield targets well into next year.

"The Federal Reserve is exiting, the European Central will taper its bond purchases next year, but I think the yield target in will stay in place for quite some time."


The is set to slash its consumer forecast for the year ending in March 2018 to around 1.0 percent from the current 1.4 percent estimate made in April, the sources said.

The central is also seen cutting next fiscal year's forecast to 1.5 percent or below, from the current projection of 1.7 percent, they said.

Depending on how big the cut in next year's forecast will be, the may push back the timing for hitting its target from the current estimate of "around fiscal 2018," the sources said.

In a testament to the improving economy, the will slightly revise up its economic growth forecasts for the current and following fiscal years, the sources said.

The central will also offer a more upbeat assessment of the than last month to signal its growing conviction that it is expanding moderately, they said.

In its current forecasts, the expects gross domestic product (GDP) to expand 1.6 percent in the current fiscal year and 1.3 percent in the following year.

The disparity between strong growth and low will be a key topic of debate at next week's rate review, when the issues its quarterly report with new long-term projections.

The board is divided between those who blame structural factors for keeping weak, and those who feel a tightening job market will soon push up wages and prices.

Some policymakers say companies still have room to cut back on services and streamline operations, instead of luring more employees with higher pay. Only when firms run out of areas to cut costs would they start raising wages and prices, they argue.

The BOJ's report is likely to offer an analysis on why the strength in the hasn't translated into higher wage and price growth, the sources said.

Japan's grew at an annualised 1.0 percent in the first quarter on solid exports and private consumption.

But core consumer prices in May rose just 0.4 percent from a year earlier, well below the BOJ's 2 percent target. Tokyo inflation, a leading indicator of nationwide prices, was flat in June from a year earlier, stunning officials who expected a stronger reading given a recent pick-up in consumption.

(Additional reporting by Sumio Ito and Yoshifumi Takemoto; Editing by Jacqueline Wong)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

First Published: Fri, July 14 2017. 08:45 IST