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BOJ further delays timing of achieving 2% inflation, maintains policy

  • July 20, 2017
  • , Kyodo News , 8:42 p.m.
  • English Press

The Bank of Japan on Thursday pushed back the timing of achieving its 2 percent inflation target for a sixth time, underscoring its struggle to spur price gains despite its prolonged large-scale monetary easing.


Following a two-day policy meeting, the BOJ left unchanged its monetary policy including asset purchases and a negative interest rate, in contrast to other major central banks turning toward tightening.


The BOJ said in its quarterly report the inflation target will be reached sometime around fiscal 2019, a year later than the previous guidance of around fiscal 2018. The bank has postponed the timeframe for meeting the inflation goal six times since Governor Haruhiko Kuroda introduced drastic easing measures in April 2013.


The latest delay will leave the target almost certainly unachievable during Kuroda’s term, which ends next April.


“The economy is steadily growing but consumption remains weak,” Kuroda said in a post-meeting press conference.


“Businesses and households are caught in the mindset that prices won’t increase in the future, which is unfavorable to raising inflation.”


The postponement is sure to fuel skepticism over the effectiveness of the BOJ’s current policies and deal a blow to Prime Minister Shinzo Abe’s economic policies designed to beat chronic deflation. But Kuroda sought to allay such concerns.


“While this setback is unfortunate, momentum toward the 2 percent inflation target remains intact,” he said. “We will persistently maintain our monetary easing measures to achieve it as soon as possible.”


He dismissed the idea that additional easing measures are necessary at the moment, while defending the BOJ’s continued pursuit of the 2 percent target, calling it a “global standard” among central banks.


In the report, the BOJ said it expects inflation to reach 1.1 percent in fiscal 2017 through next March, down from the April forecast of 1.4 percent. It also forecast prices to rise 1.5 percent in fiscal 2018, down from the earlier 1.7 percent.


“The BOJ was more dovish than expected on the inflation forecast,” said Naohiko Baba, chief economist at Goldman Sachs Japan Co. “An exit from easing seems even further away now.”


The outlook highlights the continued difficulty the BOJ faces in creating a cycle where strong corporate earnings lead to higher wages, spurring household spending and giving businesses the confidence to raise prices.


The central bank meanwhile upgraded the forecast for Japan’s economic growth amid recent upbeat data, saying it expects real gross domestic product in fiscal 2017 to expand 1.8 percent compared with the April forecast of 1.6 percent.


The growth outlook for fiscal 2018 was also raised to 1.4 percent from 1.3 percent.


It also slightly upgraded the overall assessment of the economy, describing it as “expanding moderately” compared with “turning toward a moderate expansion” in April. But it also cautioned that “risks to both economic activity and prices are skewed to the downside.”


Government data shows the economy expanded for the fifth straight quarter in the January-March period, the longest stretch of growth in more than a decade albeit at a moderate pace, amid robust exports and a modest pickup in household spending.


Job availability in the country is at a four-decade high and unemployment remains low, though income growth has not followed as expected.


Inflation has slowly been rising but still remains near zero percent. The nationwide core consumer price index, which excludes fresh foods because of their volatility, rose just 0.4 percent in May from a year earlier.


The BOJ’s current monetary policy includes bond purchases aimed at guiding the yield on the 10-year government debt — the bellwether of long-term interest rates — to around zero percent, and an interest rate of minus 0.1 percent on some funds that financial institutions keep parked at the central bank.


The BOJ’s maintaining of post-financial crisis stimulus stands in contrast to its peers. The U.S. Federal Reserve has raised interest rates twice this year and looks to begin cutting its balance sheet, while the Bank of Canada last week raised rates for the first time in seven years.


The Bank of England has signaled it is also considering raising rates, and financial markets are watching the European Central Bank’s policy meeting later in the day for signs it will pull back from its bond buying program.


Thursday’s BOJ meeting marks the last for board members Takehiro Sato and Takahide Kiuchi, former private-sector economists and strong critics of Kuroda’s reflationary policies who end their terms on Sunday.


Replacing them are Hitoshi Suzuki, a banker at Japan’s biggest lender the Bank of Tokyo-Mitsubishi UFJ, and Goshi Kataoka, an economist at think tank Mitsubishi Research and Consulting Co.



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