BOJ to forecast inflation nearing 2 pct target in FY2019, 2020 - sources
* BOJ to roughly maintain 1.8 pct price f'cast for FY2019
* Inflation to stay near 2 pct in FY2020 - sources
* No change seen to timeframe for hitting price goal
* BOJ to issue new quarterly growth, price views next week
* BOJ to keep policy steady at April 26-27 rate review
(Adds detail, background)
By Leika Kihara
TOKYO, April 17 (Reuters) - The Bank of Japan will likely
maintain its view inflation will reach its 2 percent target next
fiscal year and project it will stay near that level the
following year, in new forecasts due out next week, sources
familiar with its thinking said.
But the central bank will reassure markets it is nowhere
near an exit from years of ultra-loose policy given risks to the
inflation outlook, such as uncertainty on how quickly companies
would raise wages to meet labour shortages, the sources said.
The projections could heighten the chance the BOJ will
debate whittling down its massive stimulus next fiscal year. But
a full-blown shift to monetary tightening is unlikely as BOJ
Governor Haruhiko Kuroda has said inflation must exceed 2
percent stably for it to reduce its huge balance sheet.
"The economy is sustaining momentum for inflation to reach 2
percent. But the pick-up in inflation remains modest," said one
of the sources, a view echoed by two other sources.
"The key would be how quickly inflation expectations will
heighten, which remains uncertain," another source said.
The BOJ will conduct a quarterly review of its growth and
price forecasts at a rate review on April 26-27, when it is
expected to keep monetary policy unchanged.
There had been some market speculation that the BOJ would
downgrade its 2019 inflation forecast. It will be releasing its
2020 projection for the first time.
LABOUR SHORTAGE KEY
The nine-member board is likely to roughly maintain its
forecast made in January that inflation will hit 1.8 percent in
fiscal 2019, and project inflation to stay near 2 percent the
following year, the sources say.
The BOJ is likely to keep unchanged the timeframe for
hitting its price goal, now set at fiscal 2019, they say.
Such optimistic estimates would reflect the BOJ's view that
robust global demand will keep the economy on course for a solid
recovery, allowing companies to boost spending and raise wages.
The BOJ also hopes a tightening labour market will drive up
wages. Labour shortages, however, would also push up costs and
may discourage firms from expanding their operations, a point
that may be discussed at next week's rate review.
A recent BOJ report on regional economies included examples
of how firms were coping. A machinery firm in eastern Japan said
it had to turn down new orders due to staff shortages.
Yoshitake Matsumoto, the BOJ's branch manager overseeing the
Kyushu southern Japan region, said labour shortages were the
primary concern for companies in the area.
"We need to see whether labour shortages could become a
bottle-neck for the economic recovery," he told reporters.
Japan's economy expanded an annualised 1.6 percent in the
October-December quarter, marking the eighth straight quarter of
gains, on robust global demand and capital spending.
But core consumer inflation stood at 1.0 percent in
February, well below the BOJ's 2 percent target, as slow wage
growth keeps consumers from increasing their spending.
(Additional reporting by Sumio Ito
Editing by Kim Coghill and Jacqueline Wong)
First Published: 2018-04-17 12:00:01
Updated 2018-04-17 12:36:23
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