Japan likely to keep growing at pace above potential rate: BOJ

The year-on-year (YoY) rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be 2.5-3 per cent for fiscal 2024-25 (FY25, April 1, 2024-March 31, 2025), around 2.5 per cent for FY26, and around 2 per cent for FY27, a note from the central bank said.

While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, underlying CPI inflation is expected to increase gradually, as it is projected that with a growing sense of labour shortage, the output gap will improve and medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.

In the second half of the projection period, underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target.

The projected real gross domestic product (GDP) growth rates are more or less unchanged.

Risks to the outlook include developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behaviour.

With firms' behaviour shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices.

Risks to economic activity are generally balanced. Risks to prices are skewed to the upside for FY25 and FY26.

ALCHEMPro News Desk (DS)