By Leika Kihara
TOKYO (Multibagger) - The Bank of Japan is expected to slightly lower its economic growth forecast for this year in July but maintain its inflation target of around 2% in the upcoming years, sources revealed. This move keeps the possibility of an interest rate hike later this month alive.
During its next policy meeting on July 30-31, the central bank will unveil new quarterly growth and price projections and deliberate on whether to increase rates from their current near-zero levels.
According to three sources familiar with the matter, a rare unscheduled revision to Japan's historical GDP data will likely result in a minor adjustment to the BOJ's growth forecast for the current fiscal year. However, the bank is expected to maintain its GDP projections for fiscal 2025 and 2026, affirming its belief that the economy is on track for a gradual recovery.
In its April forecasts, the BOJ anticipated a 0.8% growth in the current fiscal year ending in March 2025, followed by 1.0% growth in both fiscal 2025 and 2026. In terms of inflation, the bank had forecasted a rate of 1.9% in 2024 and 2025, climbing to 2.1% in 2026.
Despite the GDP downgrade, sources indicate that the BOJ's overall economic assessment remains largely unchanged. They also expect inflation to hover around the 2% target through early 2027.
These projections could bolster the case for a potential interest rate hike in the near future, as Governor Kazuo Ueda has emphasized the importance of sustained inflation at the target level for such a move.
ANALYSIS:
The Bank of Japan is likely to adjust its economic growth forecast downward in July but maintain its inflation target of 2% in the coming years. This could pave the way for a potential interest rate hike in the near future. The bank's confidence in the economy's moderate recovery and stable inflation rate suggests a positive outlook for Japan's financial landscape. For investors, this signals a possible shift in monetary policy and presents opportunities for strategic investment decisions.