Yahoo Finance BOJ Is Said to Mull Raising Inflation View on Strong Pay Deals
(Bloomberg) -- The Bank of Japan will likely consider raising its inflation forecast at a policy meeting later this month after surprisingly strong results from annual wage negotiations, according to people familiar with the matter.
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The central bank will probably discuss revising up its projection for growth in consumer prices excluding fresh food from the current 2.4% for the fiscal year that started this month, the people said. In its first projection for the fiscal year from April 2026, the BOJ is likely to forecast inflation of around 2%, they added.
The BOJ concludes its next two-day gathering on April 26 and is widely expected by economists to keep its policy settings steady for now.
Since the central bank raised rates for the first time in 17 years last month and ended its massive monetary easing program, market players have been focusing on any hints for the timing of the next rate hikes.
The yen briefly strengthened to 151.73 against the dollar following the news. The currency still remains close to the 152 mark seen by some traders as a potential level for intervention by Japan.
Governor Kazuo Ueda has already managed to pare back stimulus at a faster pace than expected in his first year at the helm.
Read more: BOJ’s Timing for Next Hike in Focus as Ueda Starts Second Year
Rising oil prices and the weak yen are spurring inflationary pressure that could fuel speculation of earlier moves by the BOJ. Among economists surveyed after the BOJ scrapped its negative rate in March, some 62% expect the next rate hike to come by the bank’s October meeting, with just under a quarter flagging July as the most likely month.
Another factor prompting private economists to raise their inflation projections is the government’s decision to scrap a prolonged subsidy program that capped energy prices.
Central bank officials are likely to consider raising a measure of the deeper inflation trend in fiscal 2024 that also excludes energy prices to 2% or more, the people said. Officials see rising personnel costs stemming from higher wages among the factors feeding into higher prices going forward, they added.
Despite the raising of forecasts, officials flag that they need to be wary of possible downside risks to inflation too when making projections for fiscal 2026.
The BOJ will finalize its new forecasts after parsing the latest data and analyzing market developments until the last minute, the people said.
The news comes as government officials keep traders on high alert over potential currency intervention in support of the yen. Japan’s top currency bureaucrat Masato Kanda has signaled frustration over the yen’s persistent weakness even after the BOJ’s March 19 rate hike.
Any inkling that Japan’s central bank might hike rates at a faster pace than expected could help strengthen the yen against the dollar. A shift in views on when the Federal Reserve will cut rates is an even bigger factor feeding into the exchange rate, with upcoming US inflation data due Wednesday in the spotlight.
Read more: Yen Watchers Game Out Intervention Risks Post US CPI Report
The BOJ justified its March move by saying it could foresee achieving its stable inflation target toward the end of the forecast period through fiscal 2025, following strong results from annual wage negotiations between companies and unions.
Japan’s largest labor union federation last week updated its running tally of results for this year’s wage talks, saying workers had secured 5.24% wage gains as of April 2. At that pace the increases would be the biggest in more than 30 years.
Among private sector economists revising their inflation forecasts higher, BNP Paribas upgraded its price growth forecast for this fiscal year to 3% from 2.2% on April 1, citing the result of the wage talks and the government’s decision on the energy program.
SMBC Nikko Securities also raised its own prediction to 2.6% last week.
(Adds market move following report)
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