BOJ Considers Changing Inflation Forecasts Over Travel Program

(Bloomberg) — The Bank of Japan is likely to consider changing its inflation forecasts to reflect the short-term impact on prices of a government travel campaign at its policy meeting next week, according to people familiar with the matter.

The central bank will probably discuss cutting its price projection for the year ending in March to account for the downward price pressure of Prime Minister Yoshihide Suga’s Go To Travel campaign, the people said. The campaign offers subsidized domestic travel. A downgrade of the projection wouldn’t trigger any additional BOJ action, the people added.

Discussions will also likely look at the upward pressure on overall prices set to take place in a year’s time when the campaign is no longer operating, the people said.

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Government’s travel discount measures have helped push prices below zero

The BOJ is likely to play down the lasting impact of the subsidies and will instead emphasize that its overall view of the economy and inflation is largely unchanged even if its projections are tweaked, the people said.

Given the stability of financial markets and availability of funding for companies, the BOJ is likely to stand pat for the time being, they said.

The central bank will release its quarterly economic outlook report along with its policy statement on Oct. 29. Almost all economists surveyed by Bloomberg predict monetary policy to remain unchanged.

Video: Inflation may reach a level not seen in decades. Here’s why. (CNBC)

Inflation may reach a level not seen in decades. Here’s why.


The travel discounts started in July and have helped drive consumer inflation below zero as hotel prices dropped by more than 30% from a year ago. The campaign has weighed on monthly consumer prices by about 0.4 percentage point. It’s expected to drag CPI down by around 0.2 percentage point in fiscal 2020, according to the ministry of internal affairs.

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CPI Outlook



Fiscal 2020 -0.5% -0.4%
Fiscal 2021 0.3% 0.2%
Fiscal 2022 0.7% 0.5%

The campaign is scheduled to end in January, though some politicians are calling for an extension. It offers a 35% discount on travel packages to spur demand and help the tourism industry and regional economies cushion the effect of the pandemic.

BOJ Governor Haruhiko Kuroda said last month that the bank doesn’t need to worry about the discounts since the impact is only transitory, a view shared by 62% of the polled economists.

Core inflation, currently -0.4%, is set to get even weaker toward the end of the year as the upward effect of last year’s sales tax hike drops out of figures, in addition to the lagging impact of oil price drops earlier this year.

(Adds details on travel campaign impact and rundown of current price forecasts)

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