Exclusive: BOJ to cut price forecast for next FY only slightly - sources

Fri Oct 23, 2015 12:11am EDT
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan will cut its growth and inflation outlook for this fiscal year at a rate review next week but only slightly tweak its projections for next year, sources said, possibly tempering expectations that the central bank will soon ease monetary policy further.

By not straying far from its current projections for next year, the BOJ can maintain that it is still broadly on course to meet its inflation goal of 2 percent next year without needing to step up its massive asset purchase program, people with direct knowledge of the matter told Reuters.

Critics say the program has been only marginally effective and distorts the bond market, and the BOJ board itself has not been unreservedly behind it.

Finance Minister Taro Aso also expressed doubt on Friday that further monetary stimulus would help achieve the inflation target.

As Japan flirts with recession, hit by weak exports, the BOJ is preparing to cut its core consumer inflation forecast for the fiscal year that began in April to below 0.5 percent in a semi-annual report due out on Oct. 30, the sources said. It forecast inflation of 0.7 percent three months ago.

But the bank, which is trying to bring an end to decades of deflationary pressure, will only cut by 0.1-0.2 point its forecast that price rises will accelerate to 1.9 percent next fiscal year, keeping it near its target, they said.

"Overseas headwinds are largely behind the current economic slowdown," one source said. "That means the downward pressure on inflation will be milder than last year," he said, when firms were reluctant to raise prices as household spending was restrained by a sales tax hike.

The sources said the forecasts had not been finalised and changes could be made ahead of the announcement. The projections are compiled by the central bank's nine policy board members.   Continued...

A man walks past the Bank of Japan (BOJ) building in Tokyo, June 24, 2015. The government's backsliding on promises to rein in spending puts the Bank of Japan in a bind, limiting its scope to expand its massive monetary stimulus when the economy needs it, or ultimately to wind it back without causing chaos in the bond markets. Picture taken June 24, 2015.      To match story JAPAN-ECONOMY/BOJ       REUTERS/Toru Hanai - RTR4YZ0O