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Well-informed sources have revealed that Bank of Japan (BOJ) officials may discuss the possibility of lowering their inflation and economic growth forecasts during a meeting later this month.

According to these sources, BOJ officials are likely to discuss the revision of their projections for economic growth and inflation indicators, including energy, when they convene later this month to formulate policy. This comes despite the overall assessment of price trends remaining unchanged.

The aforementioned sources indicate that due to the decline in oil prices, officials may consider reducing the consumer price expectations for the next fiscal year, starting in April and excluding fresh food, from 2.8% to around 2.5%. For the following fiscal year, they still anticipate this indicator to be slightly below the BOJ's 2% target.

The BOJ is scheduled to release its latest quarterly forecasts during the meeting on January 22nd and 23rd. Market consensus expects the BOJ to maintain its negative interest rate policy this month and await further evidence of positive wage and price growth.

Sources also suggest that following weaker-than-expected GDP data for the third quarter, officials may discuss lowering growth expectations for the current fiscal year. They believe that there is little need for significant adjustments to the assessment of underlying price trends, hence predictions for prices excluding fresh food and energy are likely to remain largely unchanged.

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However, the final decision will only be made after officials have carefully reviewed all available data and financial market conditions. They continue to anticipate that inflation will gradually accelerate after a temporary slowdown.

The prospect of lowered inflation expectations could reinforce market speculation that the BOJ will remain on hold this month. Previously, many BOJ observers anticipated that the central bank would abandon its negative interest rate policy in January.

Uncertain evidence of wage growth provided by business hearings conducted by BOJ branch managers earlier this week has intensified this view, as BOJ Governor Haruhiko Kuroda has stated that he requires clear evidence of a virtuous wage-price cycle before normalizing monetary policy.

Furthermore, sources say that BOJ officials also need more data to assess the impact of the earthquake that occurred on New Year's Day on the economy.

Since the earthquake, market expectations for the BOJ to end its negative interest rate policy have been postponed. Overnight swap trades currently indicate a roughly 28% chance of a rate hike by the BOJ in April, whereas at the end of last year, this possibility was over 60%.However, economists believe that April is the month when the Bank of Japan is most likely to raise short-term interest rates for the first time since 2007.

Bank of America has postponed its base forecast for the Bank of Japan to abandon negative interest rates and yield curve control (YCC) from the previous January to April. The bank's economists, Izumi Devalier and Takayasu Kudo, wrote in a report:

"Even so, the acceleration of Japan's core inflation is likely to continue, and monetary policy is moving towards a direction of 'gradual normalization'. The increase in basic wages in the fiscal year of 2024 may also further improve."

Bank of America still believes that after abandoning negative interest rates and YCC, the Bank of Japan will raise interest rates by 25 basis points during the period from October to December this year and from April to June next year, bringing the policy interest rate to 0.5% by mid-2025.