The Bank of Japan is putting more emphasis on an inflation gauge that excludes fuel costs, and will likely raise its projections for the index's growth in quarterly forecasts due this month, said three sources familiar with its thinking.
The upgrade would underscore the central bank's growing conviction that robust domestic demand will allow firms to raise prices, and keep inflation sustainably around its 2% target in coming years.
But the upward revision alone was unlikely to trigger an immediate interest rate rise, because many BOJ officials saw a need to scrutinise annual spring wage negotiations and the fallout from U.S. interest rate hikes, the sources said.
"Price rises are broadening more than initially expected, a trend that could continue if wages rise enough," one of the sources said.
"When stripping away one-off factors like government subsidies, trend inflation appears to be gaining momentum," another source said, expressing a view that was echoed by the third.
But in April it also began issuing forecasts for "core-core" consumer inflation, which strips away the effect of both fresh food and energy costs, to better grasp the broad price trend driven by domestic demand.
With government fuel subsidies and scheduled utility bill hikes muddling this year's price outlook, the BOJ was now focusing more on the core-core index in determining whether Japan could achieve sustained price rises, the sources said.
In fresh quarterly projections due this month, the BOJ would probably raise its core-core inflation forecasts for the current fiscal year ending in March and fiscal 2023, they said.
It might also slightly upgrade the forecast for fiscal 2024, depending on how the board viewed prospects for wage growth, the sources said.
