TOKYO • Japan's central bank will cut its inflation forecasts but hold off expanding stimulus this month, people familiar with the matter say, in another sign the bank is retreating from governor Haruhiko Kuroda's initial pledge to do whatever it takes to achieve his ambitious inflation target.
The inflation downgrade would be a fresh blow to Mr Kuroda before his tenure ends next April, and underscores the challenges the central bank faces in using monetary stimulus to lift prices and convince the public that its policies are working.
The Bank of Japan's nine-member board will seek to explain why the strength in the economy has yet to translate into inflation, a dilemma they are struggling with as wages and prices remain stubbornly weak, sources said.
At a rate review on July 19-20, the BOJ is set to keep monetary policy steady and offer a more upbeat assessment of the economy than it did last month to say it is expanding moderately, reflecting robust business sentiment and consumption, the sources said.
But the BOJ is likely to cut its inflation forecast for the year ending in March next year, and possibly that for the following year, in a quarterly review of its long-term projections to be released on July 20, they said.
At its April policy meeting, the BOJ said it expects core consumer inflation to hit 1.4 per cent in the current fiscal year and 1.7 per cent in fiscal 2018.
The downgrades will likely be minor and reflect the effect of recent oil price falls, companies' reluctance to raise prices and weak inflation expectations, the sources said.
Japan's economy expanded an annualised 1.0 per cent in the first quarter on robust exports and household spending, while business confidence hit a three-year high in the three months to June, adding to signs the economic recovery is gaining pace.
Tokyo inflation, a leading indicator of nationwide prices, was flat in June from a year earlier, stunning BOJ officials who expected a stronger reading.
Despite the gloomy outlook on inflation that could lead to further delays in achieving its price target, the BOJ is wary of ramping up stimulus due to a dearth of policy options.
REUTERS
