Bank of Japan raises this year's CPI forecast to 2.8%, cuts growth outlook to 0.5%

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[Tokyo = Seo Hyejin, The Financial News] The Bank of Japan (BOJ) said on the 28th that it raised its forecast for this year's Consumer Price Index (CPI) growth to 2.8%, up 0.9 percentage points from its previous estimate, reflecting the impact of higher global oil prices caused by tensions in the Middle East. It also cut its forecast for real Gross Domestic Product (GDP) growth this year to 0.5%, down 0.5 percentage points from the previous outlook.
The BOJ disclosed the figures in its "Outlook for Economic Activity and Prices" report released at the day's monetary policy meeting. The report is issued every three months.
First, it raised this year's forecast for CPI growth excluding fresh food by 0.9 percentage points to 2.8%. It also lifted next year's CPI forecast by 0.3 percentage points to 2.3%. The figures represent the median forecast of the BOJ's nine policy board members and reflect the effect of higher crude oil prices amid rising tensions in the Middle East.
The report said that, while assuming "there will be no major disruption to supply chains," it sees "significant upside risks centered on 2026" for the future price trend. It also noted that companies are increasingly raising wages and passing on higher costs, adding that "it is necessary to remain sufficiently vigilant so that the risk of inflation deviating significantly to the upside and then harming the economy does not materialize."
Reflecting the impact of higher oil prices, the BOJ cut its forecast for real GDP growth this year by 0.5 percentage points to 0.5%. It also lowered next year's real GDP growth forecast by 0.1 percentage point to 0.7%. However, taking into account strong corporate profits, solid wage increases and the effect of government energy subsidies, it said that "growth will slow, but the economy will continue to expand at a moderate pace."
The report also warned that if the impact of Middle East tensions continues for a prolonged period, "not only could oil prices remain elevated, but large-scale supply chain disruptions could also weigh on corporate production activity."
As for future monetary policy, the BOJ said that real interest rates, adjusted for price changes, remain at very low levels and that it will "continue to raise policy rates and adjust the degree of monetary easing in line with economic and price conditions."
sjmary@fnnews.com Seo Hyejin Reporter