In the latest Outlook for Economic Activity and Prices, BoJ said the economy is “likely to continue growing at a pace above its potential in fiscal 2018”. For fiscal 2019 through fiscal 2020, the expanding trend is expected to continue, “partly supported by external demand”, but pace will “decelerate” due to “cyclical slowdown in business fixed investment” and the impact of planned sales tax hike.
Year-on-year ex-food CPI stayed positive but continued to show “relatively weak developments”. And, rise in medium- to long-term inflation expectations has been “lagging behind”. BoJ noted that’s because “the mindset and behavior based on the assumption that wages and prices will not increase easily have been deeply entrenched”. But inflation is still expected to increase gradually towards 2% target, “although it will take more time than expected”.
For fiscal 2018, risks are generally balanced. But risks are skewed to the downside for fiscal 2019.
