REPORT: The Bank of Japan may be about upgrade its economic growth forecasts

BoJ governor Haruhiko Kuroda. Photo: Junko Kimura/Getty Images

Mirroring the mood in financial markets in recent months, it seems that the Bank of Japan (BOJ) is also growing optimistic, at least when it comes to economic growth.

According to the Nikkei Asian Review, the BOJ will consider upgrading its economic growth forecasts in its quarterly outlook for economic activity and prices report when it meets in late January, encouraged by improving exports, strong production and recovering consumer spending.

“The central bank is believed to be leaning toward upgrading fiscal 2016 and 2017 (GDP forecasts), with the latter expected to end up in the mid-1% range,” it wrote

In the BOJ’s previous report, released in November, it forecast that Japanese real GDP would grow by 1% in fiscal year 2016 before accelerating to 1.3% the following year.

However, while optimism towards the economy may see it upgrade its forecasts, it says that the BOJ remains cautious on lifting its inflation outlook, suggesting that “inflation expectations are easily swayed by sluggish price trends in the past, and it takes time to change the public’s deflation-mindset”.

In November, the BOJ forecast that core consumer price inflation (CPI) — excluding price movements for fresh food — would decline by 0.1% in fiscal year 2016 before rebounding by 1.5% and 1.7% in the following two years.

The BOJ currently has a 2% inflation target.

The BOJ has pledged to continue with its “Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control” program — tailoring asset purchases of Japanese government bonds to anchor 10-year government bond yields at around 0% — “as long as it is necessary for maintaining that target in a stable manner”.

It has also said that it will continue expanding the nation’s monetary base until the year-on-year rate core CPI rate exceeds 2% “and stays above the target in a stable manner”.

The BOJ will next meet to discuss monetary policy on January 30 and 31.

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