The Bank of Japan (BOJ) is considering a small cut to its inflation projection for this year in a quarterly report to be released next week, people familiar with the central bank’s discussions said.
The bank might lower its forecast for core inflation from 1.1 percent for the fiscal year ending in March next year, the people said, asking not to be named because talks are private.
A final decision on whether to lower the forecast and the size of any possible cut will not be made until the policy meeting ends on Tuesday.
There is less likelihood of any significant changes to the price outlook for later years, the people said.
The bank does not see the need to expand its stimulus, because it has concluded that the improving output gap and tightening labor market will continue to push inflation higher over the longer term, they added.
Still, lowering the price forecast would reinforce the widespread view that the bank is to carry on its massive easing program long after its global peers have moved in the opposite direction.
Such policy divergence could help weaken the yen to about ￥120 versus the US dollar, former bank board member Sayuri Shirai said.
On the broader economy, the continuing recovery means that the bank policy board is likely to discuss changing its view that risks are “skewed to the downside,” some of the people familiar with the central bank’s discussions said.
After spending nearly all of last year in the negative territory, the core inflation gauge — which excludes fresh food — rose to 0.7 percent in August, the highest in more than three years if the effects of a 2014 sales-tax hike are excluded.
However, that figure remains far below the bank’s target of 2 percent, as well as its forecast for the current fiscal year.
Bank Governor Haruhiko Kuroda last week acknowledged factors weighing on inflation, citing falling fees for mobile phone services and related products, as well as companies cutting their business hours to absorb the pressure of rising labor costs.
Some economists say that inflation will not rise much higher, as the effects of higher oil prices will soon begin to fade.
Private economists forecast core inflation to be 0.6 percent this fiscal year and 0.7 percent next year, a Bloomberg survey this month showed.
The bank’s new forecast is likely to be 0.8 percent for this year and it could even trim its outlook for the following year as well, Maiko Noguchi, a senior economist at Daiwa Securities and a former bank official, wrote in a report on Oct. 11.
Noguchi said it was possible for the bank to raise its economic growth forecast to 1.9 percent from 1.8 percent for this year.
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