• BOJ to keep rates stable, decision due at 0300-0500GMT
  • BOJ to release new quarterly growth, inflation f’casts
  • Board to reduce growth this year, f’casts prices – sources
  • The BOJ maintains its forecast for a moderate recovery
  • Focus on Governor Kuroda’s comments on the weakness of the yen

TOKYO, Oct.26 (Reuters) – The Bank of Japan is expected to maintain its massive stimulus program on Thursday and cut this year’s inflation forecast, a sign that it has no plans to follow other central banks considering to get out of crisis policies.

While rising commodity prices have pushed wholesale inflation in Japan to a 13-year high, consumer inflation is stuck around zero as weak domestic spending prevents companies from passing costs further. high on households.

Sluggish inflation and Japan’s still fragile recovery will give the BOJ enough reason to keep its short-term interest rate target at -0.1% and 10-year bond yields around 0% when its two-day policy meeting ending Thursday.

In the new quarterly projections, the BOJ cuts this year’s growth and inflation estimates, but sticks to its forecast of a moderate recovery, sources told Reuters.

“Overall, central banks are moving towards a reaction to rising inflation with rate hikes. But it’s hard to see the BOJ go hawkish,” in part because cost inflation won’t suffice not on its own to prop up inflation to its 2% target, said Hiroshi Ugai, chief economist for Japan at JPMorgan Securities.

Markets are wondering if BOJ Governor Haruhiko Kuroda will issue a warning against recent yen weakness, which is boosting exports but increasing already high import costs for retailers still reeling from the shock. the pandemic.

The dollar has hovered around 113.50 yen after hitting a four-year high of 114.585 yen on October 20, prompting the government to call for “stable” currency movements. Read more

The dollar / yen is still below the 125 level considered by analysts to be the line in the sand of Kuroda. But the real effective rate of the yen fell about 4.7% this year to 70.4 in September, according to BIS data, highlighting the decline in Japan’s purchasing power.

With exports and production affected by spare parts shortages and supply constraints, policymakers hope that the lifting of the state of emergency on September 30 will encourage households to increase their spending and contribute to a sustained economic recovery. .

“I hope that Japan will gradually see the pent-up demand materialize towards the end of the year or the beginning of next year,” Asahi Noguchi, BOJ board member, said at a recent briefing. Read more

Reporting by Leika Kihara; Editing by Sam Holmes

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