BOJ sounds most upbeat on economy in 9 years

Central bank cuts inflation forecast, signaling stimulus will continue

The Bank of Japan ( BOJ) kept monetary policy unchanged on Thursday and offered its most optimistic assessment of the economy in nine years, signaling its confidence that a pick- up in overseas demand will help sustain an export- driven recovery.

But the central bank slightly cut its inflation forecast for this fiscal year in a quarterly review of its projections, suggesting that it will maintain its massive monetary stimulus for the time being to achieve its ambitious 2 percent target.

Analysts said BOJ Governor Haruhiko Kuroda was likely to remind markets the Japanese central bank is nowhere near an exit from its massive stimulus at an upcoming post- meeting news conference.

“The inflation and growth projections, as well as the upgrade of its economic assessment, were all in line with market forecasts, so there was no surprise at this meeting,” said Yasunari Ueno, chief market economist at Mizuho Securities. “As long as the economy maintains its momentum, the BOJ will likely stand pat at least until next spring, when Kuroda serves out his term.”

In a widely expected move, the BOJ maintained its short- term interest rate target at minus 0.1 percent and a pledge to guide 10- year government bond yields around zero percent.

“Japan’s economy has been turning toward a moderate expansion,” the BOJ said a quarterly review of its long- term economic and price projections, com- pared with the previous month’s view that it was “improving moderately as a trend.”

It was the first time since March 2008 the BOJ used the word “expansion” in describing the state of the economy, signaling its conviction that the recovery was gaining momentum and that it sees no need for additional stimulus.

In the quarterly review, the BOJ cut its core consumer inflation forecast for the year ending in March 2018 to 1.4 percent from 1.5 percent, blaming stubbornly weak durable goods prices.

The BOJ also complained that public perceptions of future price rises remained weak with no clear signs of a pick- up. However, it maintained its projection that inflation will reach 2 percent during the fiscal year ending in March 2019 on the view that a tightening job market would gradually push up wages.

Many analysts doubt inflation will accelerate as quickly as the BOJ projects because slow wage growth is keeping households from boosting spending.

“Consumer price growth is around zero, which makes all of these price forecasts look overly optimistic,” said Shuji Tonouchi, senior market economist at Mitsubishi UFJ Morgan Stanley Securities. “The BOJ upgraded its economic assessment, but this is due more to overseas demand. Japan’s labor market is tight, but retailers still want to cut prices.”