The Bank of Japan is set to raise its inflation forecast but maintain ultra-low interest rates and warn of risks to a fragile economy, reinforcing its position as an outlier in a wave of global increases to borrowing costs
The decision will come hours before that of the European Central Bank, which will consider a bigger-than-expected 50 basis point rate increase to tame soaring inflation.While rising fuel and commodity costs have pushed Japan's inflation above its 2% target, the BOJ is in no rush to withdraw stimulus as slowing global growth cloud the outlook for an economy yet to fully recover from the COVID-19 pandemic's scars."Many central banks are moving to curb inflation.
In fresh quarterly projections set for release after the meeting, the board is likely to project core consumer inflation exceeding 2% in the current fiscal year ending in March 2023, sources have told Reuters. That will be an upgrade from 1.9% projected in April.But the BOJ will likely cut this year's growth forecast, and project inflation to slow back below 2% next year as the impact of rising commodity costs dissipate, they said.
Swimming against the global tide of monetary tightening, however, is not without cost. The policy divergence has pushed the Japanese yen to 24-year lows, hurting households and retailers by boosting already surging import costs. Recent BOJ data showed the central bank was forced to gobble up a record 16 trillion yen worth of Japanese government bonds in June to defend its 0.25% cap for the 10-year yield.
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