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Japan’s central bank revised its inflation forecast on Tuesday and adjusted its view of price risks, while maintaining its monetary easing policy in a nod to lingering pandemic uncertainty.

As prices rise rapidly in other economies, Japan’s inflation remains relatively weak and still well below the long-held two percent target seen as necessary to boost the world’s third-largest economy. world.

In a quarterly report on prices and the economy, the central bank said it now forecasts inflation of 1.1 percent for the fiscal year to March 2023, down from its previous forecast of 0.9 percent.

It also revised up its forecast for the fiscal year through March 2024 to 1.1 percent from 1.0 percent, leaving the projection for the current year unchanged.

“The projected rate of increase in the CPI (consumer price index) for fiscal year 2022 is somewhat higher, primarily reflecting an increase in commodity prices and the pass-through of that increase to consumer prices,” the central bank said.

It stated that “risks to prices are generally balanced,” adjusting its earlier risk assessment as “biased to the downside.”

The BoJ revised down its growth forecast for the current fiscal year to 2.8 percent from 3.4 percent previously.

But it now sees faster-than-expected 3.8 percent growth in the fiscal year to March 2023, with a slight downward revision from 1.1 percent growth in the year to March 2024.

“Risks to economic activity are skewed to the downside for the time being, mainly due to the impact of Covid-19,” it added.

The central bank stuck to its long-standing target of 2 percent inflation, which remains far off despite years of efforts and rising global prices.

Even with the latest upward price revision, “it is hard to imagine a change in (BoJ’s) policy stance” as the inflation target is “still a long way off,” UBS economist Masamichi Adachi said in a note before Tuesday’s decision.

“As no board member expects inflation to approach the 2 percent target for the foreseeable future, it is premature to talk of policy tightening,” added Marcel Thieliant, senior Japan economist at Capital Economics.

“We are even more pessimistic than the Bank on the medium-term outlook for inflation,” he added in a note.

“We stand by our view that the Bank will keep interest rates low for the foreseeable future.”

Category: Japan

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