The Bank of Japan is considering forecasting Japan's core inflation will be around 2 percent in fiscal 2026 in its new outlook report, aided by a positive cycle of pay and price hikes, sources familiar with its thinking said Friday.
The Japanese central bank is also studying revising upward its inflation outlook for fiscal 2024, which began this month, from the current 2.4 percent. The bank is expected to raise its forecast for fiscal 2025 from 1.8 percent to around 2.0 percent, the sources said.
At its two-day meeting from next Thursday, the BOJ is widely expected to keep short-term interest rates between zero and 0.1 percent, a month after its first interest rate hike in 17 years.
Robust wage growth has boosted confidence among policymakers that the BOJ's 2 percent inflation target can be "stably and sustainably" achieved.
The rise in core consumer prices, which exclude those of volatile fresh food, has remained above 2 percent for the second straight year, up 2.8 percent in fiscal 2023 ended March, government data released Friday showed.
In March, the nine-member Policy Board decided to end its negative rate policy and scrap its program to keep borrowing costs extremely low through government bond buying.
Headline inflation has remained above 2 percent for 24 consecutive months due largely to higher energy and raw material import costs. However, BOJ Governor Kazuo Ueda has said that underlying inflation, excluding temporary factors, is still slightly below the 2 percent threshold.
Since the BOJ belatedly joined other central banks in raising interest rates, financial markets have been seeking to determine when it would hike them again.
Despite the policy change, the yen remains weak, especially against the U.S. dollar, boosting the likelihood that the weaker tone will inflate import costs for resource-scarce Japan, keeping the inflationary trend intact.
Ueda said Thursday that if the impact of the weaker yen on inflation "cannot be ignored," the BOJ would make a policy change, signaling that a rate hike may come.
