Informed sources: The Bank of Japan may raise its inflation expectations while keeping interest rates unchanged

According to four informed sources, the Bank of Japan may raise its inflation outlook for the next fiscal year in the forecasts to be released this month, as rising oil prices are exerting more persistent price pressures on the economy than expected.

Sources said that given that the Bank of Japan just raised interest rates last month, it is expected to maintain interest rates at the two-day policy meeting ending on October 30, unless the yen exchange rate falls significantly again, which would raise import costs and overall inflation levels.

Sources indicated that the Bank of Japan may continue to emphasize the growing inflation risks in the quarterly report released after the meeting, leaving room for another rate hike as early as December. One of the sources pointed out that the increase in consumer prices may last longer than expected, although underlying inflation has not changed significantly. Two other sources also expressed the same view.