TOKYO -- With the Bank of Japan now expected to lower its inflation outlook, the question is whether it will try to loosen monetary conditions further to keep moving toward its 2% target.
In the BOJ's view, the slackness in Japanese consumer prices owes much to a passing downturn in the price of crude oil. But households and companies are still prone to deflationary thinking. An unsettled global economic outlook also gives reason for caution.
The BOJ wants inflation not just to reach 2% but to stay there. It believes that downdrafts like plunging gasoline prices will let up eventually. "Core core" inflation, which excludes both food and energy, quickened to 1.1% in August. "The underlying trend in inflation has been improving steadily," BOJ Gov. Haruhiko Kuroda told an audience in Osaka on Monday.
Not all of the signs are encouraging. Japanese stocks have lost considerable ground since the summer amid rising unease over emerging-market growth. Some reckon that Japan's economy shrunk again in real terms in the third quarter following a contraction in the previous three months. Inflation expectations have diminished somewhat. Given the similarities to economic conditions last October, when the central bank called up a massive reinforcement of quantitative easing, quite a few BOJ watchers believe it will do the same this month.
That would likely entail increasing the size of its asset purchase program. Government-bond buying may rise from the current pace of 80 trillion yen ($661 billion) a year to between 90 trillion yen and 100 trillion yen. Other options include raising purchases of exchange-trade funds or cutting the interest rate on the reserves that banks keep at the BOJ.