BOJ may raise price outlook as food inflation beats expectations, sources say
The central bank will probably weigh increasing its key price forecast from 2.2% for this fiscal year after food inflation proved stronger than they expected at the beginning of May, when the last quarterly outlook report was released, according to the people. Higher oil prices provide another reason for considering an upward revision, they said.
The yen briefly strengthened against the dollar following the report, while Japan's bond futures dipped.
The BOJ will update its quarterly outlook report at the end of its meeting on July 31. The bank is widely expected by BOJ watchers to keep its benchmark rate unchanged at 0.5% at the meeting, amid uncertainties stemming from ongoing U.S.-Japan trade talks and the potentially disruptive results of Japan's Upper House election on July 20.
The cost of living and the price of rice have become key issues ahead of the election, as the cost of the staple food has recently doubled compared to the previous year — jumping in May by the most since 1971. Meanwhile, Middle East tensions have jolted the oil market.
Still, the BOJ sees little need to make any major changes to its big picture outlook for the economy and inflation, according to the people.
The bank can likely retain its view that Japan's price trend will be consistent with its sustainable inflation goal in the second half of the BOJ's three-year outlook period through March 2028, they said. That lays the ground for the bank to continue to pursue further rate hikes.
The officials see uncertainties remaining extremely high, and believe they need to carefully monitor the impact of U.S. President Donald Trump's tariffs in incoming data to decide the timing of the next rate hike.
So far Gov. Kazuo Ueda has said that the impact of the levies has yet to show up much in hard data.
At the same time, Japan's inflation has stayed elevated, rising to a fresh two-year high in May.
Households expect an annual average inflation rate of 9.9% over the next five years, the highest on record, according to the BOJ's quarterly household opinion survey released Monday.
The central bank will finalize its outlook by sifting through all the data and information available until the last minute, according to the people.
In making the forecast, the BOJ won't be considering the impact of the across-the-board tariff of 25% announced by Trump last week as trade talks are still underway and that means the level is subject to change, they said.
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