TOKYO: The Bank of Japan is expected to cut its core consumer inflation forecast for next fiscal year - the deadline for meeting its 2 percent target - to 1.5 percent or lower, sources say, keeping it under pressure to expand an already huge stimulus programme.
Core consumer inflation has fallen below 1 percent and is seen slowing to near zero in coming months due to plunging global oil prices, threatening the BOJ's pledge to achieve its 2 percent price target during the fiscal year that starts on April 1.
Sources told Reuters in December that the BOJ looked set to cut its inflation forecasts at its Jan. 20-21 rate review. But the scale of the cut will be deeper than initially projected as oil prices have continued to dive since then, the sources said.
Having just eased monetary policy in October, many BOJ officials prefer to hold off on additional stimulus and wait to see whether companies accept labour union demands to raise base salaries in their spring wage negotiations.
But cutting its price forecasts will put pressure on the central bank to either ease again or acknowledge that it will take more time to meet its ambitious price target, analysts say.
Oil prices have dived by about 60 percent since last June.
The BOJ may cut its core consumer inflation forecast for the fiscal year ending in March 2016 to 1.5 percent or lower from the 1.7 percent it projected in October, said sources familiar with its thinking.
That will be roughly in line with the government's recent forecast that headline consumer inflation which, unlike core consumer inflation includes the effect of volatile fresh food costs, will hit 1.4 percent next fiscal year.
Some in the BOJ agree with private-sector analysts that core consumer inflation will slow to around 1.0 percent next fiscal year, given the pressure from oil price falls.
Others are more optimistic, arguing that wage gains and rising import costs from a weak yen will offset some of the pressure from the oil rout. But even they say consumer inflation won't accelerate much until early next year.
Debate is thus set to intensify at next week's meeting on whether the BOJ ought to ease again or allow itself more time to achieve the price target.
While Governor Haruhiko Kuroda has ruled out watering down the timeframe for hitting the price target, many others on the board are doubtful that inflation will hit 2 percent so quickly.
Economics Minister Akira Amari said the BOJ is unlikely to meet its inflation target next fiscal year, the clearest sign yet that the government may be willing to accept a longer time-frame for hitting the bank's price goal.
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