By Leika Kihara

TOKYO, Reuters – On Tuesday, the Bank of Japan will likely revise its inflation forecast and recognize signs of improvement in Japan’s deflationary outlook. This is because stubbornly high commodity prices prompt more companies to increase their prices.

With inflation expected to stay below its target of 2%, the BOJ will probably stress its determination to continue its loose monetary policy while its counterparts around the world move towards exiting crises-mode policies.

It is expected that the BOJ will leave unaltered its -0.1% short-term rate target and promise to maintain long-term rates at around 0% during its meeting on Tuesday.

Sources tell Reuters that the BOJ may slightly increase its forecast of inflation for April, based on the current 0.9% estimate.

The latest report, which may be different from its October assessment, could highlight rising inflationary pressures and shifts in the balance risk regarding the price outlook. Sources said.

In a speech, BOJ Governor Haruhikokuroda stated that Japan’s inflation would gradually increase as a result of improvements in the output gap and higher medium- and longer-term inflation expectations.

It is possible that the central bank will also indicate plans for a comprehensive analysis to determine whether current signs of rising inflation are sustainable.

Not because inflation is climbing towards central bank target, but because external factors are complicating matters.

Inflation has risen in wholesale and import prices have risen from weakening yens. This is causing price increases for many goods. It also impacts households while wage growth continues to slow.

Analysts expect core consumer inflation of 1.5% to occur around April. This is because the effects from last year’s phone fee reductions taper off, and previous rises in oil prices push up electricity costs.

The rise in raw material prices is more important than the anticipated uptick of domestic demand. In the near term, the BOJ will try to prevent a temporary blip from inflation and market speculation that would lead to an earlier policy tightening.

Analysts warn that if rising prices are not discounted enough, it could reduce public expectations of future price increases and slow down the BOJ’s efforts to infuse inflation at its target.

According to reliable sources, BOJ’s policy outlook will be debated by the BOJ on whether wage increases would give consumers purchasing power and allow companies to continue to increase prices, thereby accelerating inflation.