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ECONOMY > Economic Indicators

BOJ cuts inflation outlook, stands pat on stimulus

  • October 31, 2018
  • , Kyodo News , 17:22 P.M.
  • English Press

The Bank of Japan on Wednesday cut its inflation outlook for the three years through fiscal 2020 amid tepid price gains and heightened risks to the global economy.

 

The central bank’s policy-setting board, meanwhile, decided after a two-day meeting to keep long-term and short-term interest rates at their current ultra-low levels and to continue its large-scale asset purchases.

 

BOJ Governor Haruhiko Kuroda promised that the central bank would respond should economic and price conditions take a turn for the worse.

 

“If we see downside risks having a large impact (on the Japanese economy), we could take action through monetary policy,” he told a press conference. “We could lower interest rates…or if there is clearly a significant impact we will adjust the monetary policy itself.”

 

Among risks, Kuroda specifically pointed to heightened trade tensions between the United States and China, which are feared to spill over to the rest of the world by reducing trading volume and undermining business sentiment.

 

He said the U.S. Federal Reserve’s winding down of its own monetary easing measures also poses the risk of triggering an outflow of capital from emerging markets.

 

The BOJ cut its forecast for inflation in fiscal 2018 to 0.9 percent compared with 1.1 percent expected in July. Projections for fiscal years 2019 and 2020 were both cut by 0.1 percentage point to 1.4 percent and 1.5 percent, respectively.

 

The revisions put the central bank’s elusive 2 percent inflation target, which the central bank has pursued since 2013, even further from reach.

 

Kuroda maintained, however, that upward momentum in prices remains in place given tight labor market conditions and rising wages.

 

“I don’t think the picture has changed much for prices,” he said.

 

The central bank also downgraded its outlook for growth in Japan’s gross domestic product for the current fiscal year ending in March by 0.1 percentage point to 1.4 percent.

 

In Wednesday’s decision, the BOJ maintained a pledge to keep interest rates low for “an extended period of time” as households and firms brace for an increase in the nationwide consumption tax in October next year.

 

It kept its benchmark for the 10-year government yield at around zero percent while allowing for some flexibility, and retained a short-term interest rate of minus 0.1 percent for some funds that financial institutions keep parked at the central bank.

 

The BOJ also maintained a symbolic pledge to increase its holdings of government bonds at an annual pace of 80 trillion yen ($707 billion), and made no changes to its purchases of assets such as exchange-traded funds.

 

The board’s decision was reached by a 7-2 majority, with Yutaka Harada and Goshi Kataoka dissenting.

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