Japan lifts FY 2023 inflation outlook to 2.6%, above BOJ’s target

Consumer inflation in Japan will accelerate faster than previously estimated to 2.6 percent in the fiscal year ending next March, the Cabinet Office said Thursday, well above the Bank of Japan’s target.

The government had estimated that consumer prices, which include energy and volatile fresh food items, would rise 1.7 percent in fiscal 2023. For fiscal 2024, prices are estimated to gain 1.9 percent.

The economic outlook for fiscal 2023, meanwhile, has been downgraded by the government amid slowing export growth. Japan’s real gross domestic product is now forecast to grow 1.3 percent, instead of the 1.5 percent projected in January.

The revised forecasts were presented to a meeting of the Council on Economic and Fiscal Policy on Thursday as its members debated a budget framework for the next fiscal year.

Aggressive interest rate hikes by major central banks in the United States and Europe are threatening to curb demand for Japanese products.

A growing number of Japanese firms have been passing on higher import costs to consumers and raising wages to help cope with the rising prices of everyday goods. Private consumption and capital spending, key components of domestic demand, have been relatively resilient.

The expected rise in consumer prices of all items, including perishable foods, follows the 3.2 percent jump seen in fiscal 2022, the biggest increase since fiscal 1990.

The BOJ, for its part, has not budged over its stance of maintaining ultralow rates despite quickening inflation, as it seeks to ensure pay hikes continue so that it can attain its 2 percent inflation target.

The central bank is scheduled to update its economic and price outlooks when it holds a two-day policy meeting next week. The core consumer price index, which excludes volatile fresh food items, is forecast to gain 1.8 percent in fiscal 2023 and then 2.0 percent the year after.

Resource-scarce Japan has been grappling with higher energy and raw material costs, magnified by a sharp drop in the yen.

The government has been reducing utility bills for households by lowering electricity, gasoline and kerosene prices, a move likely to curb CPI by around 0.5 percentage point in fiscal 2023, according to the government.

The core CPI has stayed above the BOJ’s target for more than a year, while the nation saw the largest pay hikes in about three decades at annual wage negotiations between labor unions and management.