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The Bank of Japan is seen sitting tight on policy while adjusting its view of inflation risks Tuesday, with Governor Haruhiko Kuroda expected to emphasize his commitment to continued easing in pursuit of the bank’s distant price target. 

All 48 economists surveyed by Bloomberg see the bank making no changes to its interest rates or asset purchases at the end of its two-day meeting. In a quarterly economic forecast, the BOJ is seen raising its inflation projection from 0.9% for the year starting in April. 

Considering rising global inflation pressures, the BOJ board is also likely to discuss whether it’s still appropriate to view price risks as “skewed to the downside,” wording that has been used since October 2014, people familiar with the matter said earlier this month.  

Most economists see the BOJ tweaking the risk assessment, although they view the changes as too small to increase the odds of policy change for the rest of this year. Inflation remains far below the bank’s 2% target, in sharp contrast with the price jumps confronting the Federal Reserve and other central banks.

Read More: BOJ’s Future Path Could Start to Emerge During Kuroda’s Last Lap

Investors will also be looking for Kuroda’s views on how the omicron variant of the coronavirus is likely to impact Japan’s recovery. 

The bank is likely to downgrade its growth projection for the year ending in March, but raise its forecast for the next fiscal year given Prime Minister Fumio Kishida’s economic package and an expected pickup in consumer spending, according to the people.

Kuroda will likely elaborate on the BOJ’s thinking at a press conference around 3:30 p.m. in Tokyo.

What Bloomberg Economics Says...

“Our focus will be on the central bank’s price and growth outlook and how it assesses the balance of risks, given rising import prices and a fresh wave of Covid-19 infections.”

--Yuki Masujima, economist

To read the full report, click here. 

What to look for:

  • Whether and to what extent the BOJ raises its inflation forecasts for fiscal 2022 or 2023 will offer a key measure of the bank’s view on the staying power of current price pressures. Private sector economists see price gains staying far below the bank’s 2% target over the longer-term.
  • Kuroda is expected to reiterate his commitment to continued easing and explain that inflation is around 0.5%, once special factors are excluded. Any deviation from that message will fuel budding speculation that the BOJ might take some step toward normalization this year.
  • With traders pricing in four rate hikes by the Fed this year, Kuroda may talk about how the BOJ will manage its yield curve control program. Once U.S. rates start to rise further, pressure could build on Japan’s yields, pushing them toward the BOJ’s ceiling of about 0.25%. Japanese yields touched 0.155% last week, the highest in 10 months.
  • Omicron cases are rising in Japan. With the government reportedly weighing a return to some activity curbs in Tokyo and surrounding prefectures within the week, economists will want to know how big a risk Kuroda sees the new variant posing for the recovery.

©2022 Bloomberg L.P.