BOJ Maintains Inflation Warning, Signals Easing Risks

The Bank of Japan is set to maintain its warning about inflation overshooting its 2% target when it meets next week, but will signal that the risk has not increased significantly over the past three months.

This marks a shift in tone from April's report, which warned of a big overshoot in inflation given the uncertainty unleashed by the Middle East war.

The BOJ believes the likelihood of a worst-case scenario, where severe supply disruption triggers a sharp price surge and forces rapid rate hikes, has diminished since April.

With the risk of an immediate oil-driven inflation shock seen as easing, policymakers are now turning more attention to the extent to which firms continue passing higher costs through to households.