BOJ expected to stand pat, adjusting view of inflation risk

Bloomberg

The Bank of Japan (BOJ) is expected to stand pat on policy, but adjust its view of inflation risks for the first time since 2014 to account for the global price spikes pushing other central banks to rein in stimulus.
All 48 economists surveyed by Bloomberg see the BOJ keeping its negative interest rate and asset purchases unchanged at the end of next week’s meeting.
Despite Japan’s weak inflation pulse, 77% of analysts say it’s likely or very likely the bank will adjust how it characterises the risks to its price forecasts. The change would imply officials now see the possibility that price gains could also outstrip their projections, not just undershoot them.
A majority of economists said slight upgrades expected to the BOJ’s inflation forecasts, due next week along with projections for economic growth, are unlikely to nudge the bank toward normalising policy.
Core inflation is running below 1% and the BOJ’s current forecasts don’t show price gains reaching anywhere near its 2% target in the next two years, a sharp contrast with conditions confronting the Federal Reserve and other central banks.
More than 80% of the surveyed analysts see the Bank of Japan keeping its main tools unchanged this year.
Still, it’s getting harder to ignore signs the global inflation wave has reached Japan’s shores. Businesses are paying the most expensive input prices in 41 years and inflation expectations among households are at the highest since 2008, a likely result of costlier gasoline at the pump.
These factors are among reasons the BOJ is likely to consider ditching a long-held view that price risks are mainly on the downside, people familiar with the matter said earlier this month.
The fast-spreading Omicron variant of the coronavirus is another global threat hitting Japan, but some 83% of economists in the survey said they don’t see the recovery being severely impacted by it. Japan’s infection rates have so far been a fraction of those elsewhere.
More than four-in-five analysts said currency weakness would probably not hurt the economy this year, either. Divergent policy paths between the BOJ and other central banks have made the yen the world’s worst performing major currency in the past 12 months, a bane to Japan’s importers but a boon to exporters.
BOJ watchers also said they were less interested in how global inflation would affect bank policy than in discussions around who will replace long-serving Governor Haruhiko Kuroda, whose term ends in April 2023. Some 40% said talks over Kuroda’s successor would be this year’s No. 1 topic surrounding the bank, compared with 30% citing inflation.