BOJ raises price outlook, stands pat on monetary policy

FILE PHOTO: Bank of Japan (BOJ) Governor Haruhiko Kuroda speaks during a news conference at the BOJ headquarters in Tokyo, Japan, September 19, 2018. REUTERS/Toru Hanai

TOKYO (Reuters) - The Bank of Japan upgraded its inflation forecasts on Tuesday and flagged heightening chances the recent commodity-driven price hikes will broaden, signalling its conviction the country was eradicating a sticky deflationary mindset.

As widely expected, the BOJ left unchanged a -0.1% target for short-term interest rates and a pledge to guide long-term rates around 0% at a two-day meeting that ended on Tuesday.

Here's how some Tokyo-based analysts have reacted to the BOJ's policy decision:

HIROSHI SHIRAISHI, SENIOR ECONOMIST, BNP PARIBAS SECURITIES

"Upward revision to the risk balance on prices reflects commodity-driven cost-push inflation. It's a one-off thing and won't cause a shift in policy given that the 2% inflation remains distant. It's true the BOJ revised up median inflation forecasts for fiscal 2022, but it was just a slight revision and the CPI is seen flat in the following year.

"There's a chance for the BOJ to tweak its stimulus policy, if inflation rises to the extent that weak yen becomes a political issue and/or there arises concern about side effects of a prolonged easing. But I don't think the BOJ will consider tapering its stimulus until Kuroda serves out his term next year as it takes a regime change to revise monetary policy."

IZURU KATO, CHIEF ECONOMIST, TOTAN RESEARCH

"Although a reference to the risk balance was revised up reflecting higher inflation, the BOJ is in no mood to change its current policy anytime soon.

"The BOJ will steadily continue its current powerful monetary easing for the time-being. Kuroda may be asked at the news conference about some speculation that the BOJ may consider reviewing policy before its 2% inflation target is met, but I think he would shrug it off. Ideally though, the BOJ should consider reviewing the current easing policy at a time when the U.S. Fed is heading to normalize monetary policy."

HIROAKI MUTO, ECONOMIST, SUMITOMO LIFE INSURANCE COMPANY

"There must potentially be some hope among BOJ officials to push interest rates higher ... Inflation is overshooting somewhat, so it will provide the BOJ with an excuse to modify its ultra-easy policy. In that sense, they have a good opportunity in front of them. It's near certain the Fed will hike rates from March, so the BOJ won't be criticized much for dropping signals that it may raise its long-term rate target a little bit."

TAKUMI TSUNODA, SENIOR ECONOMIST, SHINKIN CENTRAL BANK RESEARCH INSTITUTE

"The BOJ's (fiscal 2021 growth) outlook was already high ... it basically became close to private economists' projections. The BOJ had a little too high hopes of the post-pandemic recovery and supply constraints have had a prolonged impact as well. It also feels like they hadn't expected that the Omicron variant would spread as much as it did."

"The BOJ's GDP forecast for fiscal 2022 seems quite high. They are expecting 3.8% in fiscal 2022 and that seems to be based on an end to the pandemic. If the BOJ's forecast of 3.8% growth is met, there's a possibility that prices will rise more than expected, which could lead to talks about making tweaks to its monetary policy ... But there are doubts that the economy will recover that strongly."

AYAKO SERA, MARKET STRATEGIST, SUMITOMO MITSUI TRUST BANK

"Inflation was projected to be revised upwards and it was within the expected range. I thought it'd be raised a little further, but the increase wasn't so large."

(Reporting by Leika Kihara and Daniel Leussink; Editing by Sherry Jacob-Phillips)

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