By Leika Kihara

TOKYO (Reuters – The Bank of Japan will likely revise its price forecast for next week in response to higher raw material prices. But, the Bank of Japan stresses its determination to maintain a loose monetary policy and keep inflation at a low level.

Although the Omicron Coronavirus case spike has been highlighted by the central bank, the bank is likely to maintain its view that Omicron Coronavirus-infected cases are a concern. However, the global third largest economy will be expected to make a modest recovery following last year’s slump due in part to the pandemic.

At its policy review next Tuesday, the BOJ will likely keep its target for short-term interest rates at -0.1%. The same is expected for its 10-year yield target of -0%.

Analysts at SMBC Nikko Securities stated in a research paper that “The BOJ may upgrade its price forecast, but will still project inflation around 1.5% fiscal 2023.”

“This means that a change to the BOJ’s rate policy this year is unlikely.”

Contrary to the U.S. counterpart, who is facing surging inflation, BOJ’s main focus has been to keep deflation at bay. Low household spending and slow wage growth keeps consumer inflation around zero.

Recent signs of change in the behavior of corporate price setting have prompted debate within policymakers about whether it is wise to be prepared for an inflation spike this year.

As a result of record-breaking wholesale inflation, household and corporate inflation expectations are at multiyear highs. More firms have been able to pass rising prices on to their customers.

According to the BOJ’s Tankan business survey, there was an increase in firms that saw retail prices rising. For goods such as gasoline, flour, and cooking oils, consumers are paying more.

According to sources, the BOJ expects to increase its inflation forecast for April in a quarterly update to be published after the meeting.

According to sources, this latest report could be more pronounced than its October assessment.

However, many BOJ policymakers would prefer to delay a further increase in wages in order to determine if the anticipated uptick in inflation due mainly to rising energy costs will be sustained, they stated.

Haruhiko Kuroda, Governor of Japan is likely to emphasize that Japan’s monetary environment will be extremely loose despite the fact that the U.S. Federal Reserve has raised several rates this year.

A BOJ report could also contain an analysis of how higher commodity prices have caused households to spend more on living costs, and not a weaker yen.

This would be in contrast to the growing media coverage and market comments pointing out the drawbacks of the weak yen. It pushes up fuel import costs as well as raw material prices.

Kuroda stated repeatedly that Japan’s weak currency benefits its economy because it provides an export advantage. However, he said that the weakening currency could be more detrimental to households than it was in the past as the country has increased its dependence on imported goods.

(RAdditional reporting from Takahiko Wada, Kentaro Suugiyama; Editing done by Jacqueline Wong