Japan's Central Bank: Weakening Currency May Lead to Higher Prices

Japan's central bank, which is working to stimulate the economy and stoke inflation, may need to revise its growth and inflation forecasts later this month if the weakening currency leads businesses to raise consumer prices.

The Bank of Japan is likely to consider revising its inflation and growth forecasts later this month because a weaker yen and cost-push inflation are forcing more companies to pass on higher costs to consumers, as per people familiar with the matter.

The central bank is likely to increase its quarterly price projection to its target level of 2% or higher for the year ending next March from the 1.9% view it gave in April, said the people. The bank is also expected to revise upward its forecast for next year, which was 1.1%, they added.

Japan’s manufacturing activities were severely affected by China’s import blockages, and it is likely that the central bank will lower its current estimate for growth in 2019 from 2.9%, as a result, the sources said.

The bank will publish its new economic forecasts when it announces its decision on monetary policy at the end of the meeting. The BOJ is determined to continue with monetary easing in order to support Japan's slow economic recovery and achieve sustainable price rises, the sources said.

Former BOJ's chief economist said that he expects the Bank to raise its price forecast in the article.

Haruhiko Kuroda Photographer: Kiyoshi Ota/Bloomberg
The Bank of Japan's new governor, Haruhiko Kuroda, has been given a mandate to do whatever it takes to achieve his inflation target.

The revisions are likely to strengthen Governor Haruhiko Kuroda's argument that the economy needs support through the continuation of monetary easing as cost-push inflation poses downside risks for the recovery. Kuroda's insistence on continuing support comes despite intensified speculation that the BOJ will change policy as central banks around the globe rush to curb historic inflation gains.

The BOJ will decide on policy by assessing financial markets and economic data right up to the last minute, said the people.

Jiji said in its report that the BOJ is expected to raise its estimate for inflation this fiscal year.