BOJ to Update Inflation Estimates

According to three people familiar with the situation, the Bank of Japan is set to upgrade its inflation estimates this month, showing prices above its 2% target for two years, undermining its efforts to maintain monetary policy accommodative. The BOJ is expected to lift its core consumer inflation forecast for the year ending March 2024 to about 3% in fresh quarterly growth and inflation forecasts due at its two-day policy meeting finishing on Oct. 31.

They said it is also projected to raise its 2024 projection from 1.9 percent to at or above 2.0 percent since recent increases in oil prices are expected to raise power bills. The changes would put the BOJ's argument that it can keep monetary policy ultra-loose since "sustained" achievement of its 2% target remains elusive.

It would also pressure the BOJ to raise its 1.0 percent cap on 10-year government bond yields, which was set just three months ago, an option that some in the central bank do not rule out.

"The BOJ may upgrade its price forecasts but probably wants to keep its easy-policy framework intact for now. What it could do, instead, is to raise the cap and explain it as aimed at making the framework more flexible," said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley.