Bank of Japan revised its inflation estimates on Thursday and offers a lack of gloomy view of the economy compared to three months ago, maintaining the possibility of re -commencement of an increase in interest rates this year.
The central bank also quoted a persistent increase in food costs as a potential driver of public perception surrounding inflation and the underlying price pressure.
“The underlying inflation is still less than our 2% target, but it is expected to increase sufficiently,” Governor of Kazuo Ueda said at a press conference.
“If the headline inflation is high for a long time, we must pay attention to that risk can affect the underlying inflation,” he said, emphasizing that BOJ will examine the extent to which the company will continue to increase food prices.
In a broad -expected step, BOJ keeps short -term interest rates at 0.5% with a round voice.
The central bank maintains a promise to maintain hiking loan costs if economic development and prices move in accordance with estimates, adding that Japan will see the increase in wages and prices encourage the inflation that underlies the target of 2% of the bank.
The Japanese trade agreement hit President Donald Trump this month reduced US tariffs for imports of goods including its flagship cars, reducing pain for the economy that depends on exports and cleaning the main obstacles for further increase in BOJ interest rates.
Ueda said that the trade agreement reduced uncertainty in prospects and increased the possibility of Japan greatly helped him achieve the 2% Boj inflation target – the prerequisites for further interest rate increases.
However, he warned that the impact of a higher US levy on the Japanese economy remains uncertain.
“I don’t think the fog will immediately clean,” Ueda said.
Following Boj’s decision, Japanese shares rose while Yen shed an initial profit when Ueda marked a continuous risk of economic views in keeping interest rates stable.
Not behind the curve
Boj said in his quarterly report that uncertainty over the impact of the US trade policy “remained high” – a view that was less pessimistic than in May when it was said to be uncertainty “was very high.”
The central bank also sharply increased its inflation estimates for the current fiscal year and said the risk of the price of prospects “roughly balanced.”
Risk assessment of price is more hawkish than in May when it is said to be the risk of “leaning to the negative side,” a sign that Boj grew more confident that Japan will make the clearing obstacles for further interest rates.
Underlines its heart to increase in increased price pressure, the central bank also said that the increase in food costs can “last longer than expected” and has the second round of effect on the underlying inflation.
Ueda got rid of the suggestions in addition to Boj may be behind the curve in overcoming the risk of inflation, by saying that wages and inflation in the service sector increase but not at very fast speeds.
“I don’t think we are behind the curve, or that our risk behind the curve is large,” he said when asked whether Boj was too careful in managing price pressure.
“What stands out today is how BOJ highlights its focus on price pressure upward from rising food costs,” said Mari Iwashita, an executive tariff strategy at Nomura Securities.
“BOJ can examine data for two to three months, and increase tariffs in the earliest October,” he said.
BOJ revised the estimated core consumer inflation of this fiscal year to 2.7% from 2.2% seen three months ago. This projects inflation to reach 1.8% in the fiscal year 2026 and 2.0% in 2027, the sign of inflation in confidence will remain around the target.
But the central bank reduced its assessment of consumption for the first time since March last year, and warned of the current stagnation, squeezed by a higher price.
Boj’s monetary policy shift began last year, out of the stimulus program for a decade and raised interest rates to 0.5% in January. Reuters polls earlier this month showed that the majority of economists expect an increase in interest rates at the end of the year, underline the subtle balance faced by Boj Antara supporting the fragile economy and managing inflation risk.
Source: Reuters
