TOKYO- The Bank of Japan will likely trim this year’s economic growth forecast in July but project inflation will stay around its 2 percent target in coming years, sources said, keeping alive the chance of an interest rate hike this month.
The central bank will release fresh quarterly growth and price forecasts at its next policy meeting on July 30-31, and debate whether to raise rates from current near-zero levels.
A rare unscheduled downgrade to Japan’s historical gross domestic product (GDP) data will likely lead to a slight cut to the BOJ’s growth forecast for the current fiscal year, said three sources familiar with its thinking.
But the central bank will likely make no big changes to its fiscal 2025 and 2026 GDP forecasts, and stick to its view that the economy remains on track for a moderate recovery, they said.
In its latest forecasts made in April, the BOJ expected the economy to grow 0.8 percent in the current year ending in March 2025, before expanding to 1.0 percent in both fiscal 2025 and 2026.
Inflation, as measured by an index excluding fresh food and energy costs, had been expected to hit 1.9 percent in 2024 and 2025, and accelerate to 2.1 percent in 2026.
“The GDP downgrade is something of the past that doesn’t affect the BOJ’s economic assessment much,” one of the sources said, a view echoed by another source. “All in all, things are on track,” the first source said.
The BOJ will also roughly maintain its forecast that inflation will stay around its 2 percent target in the years through early 2027, they said.
“There hasn’t been much data requiring the BOJ to change its view on the broader price trend,” a third source said.
The sources spoke on condition of anonymity due to the sensitivity of the matter.
Such a forecast would help the BOJ make the case for a near-term interest rate hike, as Governor Kazuo Ueda has said the bank will hike rates if there is more conviction that inflation will durably hit its 2 percent target.
