BoJ de­lays in­fla­tion goal in blow to ‘Abe­nomics’

Kuwait Times - - BUSINESS -

Ja­pan’s cen­tral bank yes­ter­day again pushed back the time­line for hit­ting its in­fla­tion goal, the lat­est pol­icy change that has raised ques­tions about its at­tempt to re­vive the de­fla­tion-plagued econ­omy. The Bank of Ja­pan has for more than three years em­barked on a bond-buy­ing stim­u­lus pro­gram to try to keep in­ter­est rates ul­tra-low and in­crease bor­row­ing and spend­ing.

The scheme was in­tro­duced by BoJ gover­nor Haruhiko Kuroda in con­junc­tion with a govern­ment spend­ing drive that Prime Min­is­ter Shinzo Abe hoped would drag the world’s num­ber three econ­omy out of years of tor­por.

But in a fresh sign that au­thor­i­ties are still strug­gling, the bank said it now ex­pects to hit two per­cent in­fla­tion by March 2019 — four years later than its orig­i­nal tar­get and the lat­est in a string of de­lays.

It also leaves the next move up to Kuroda’s suc­ces­sor as the tar­get date is al­most a year af­ter his term ends. Kuroda on Tues­day de­nied there was any con­nec­tion be­tween the new tar­get and his term, and blamed the BoJ’s fail­ure to drive up prices on a drop in crude fu­tures and weak de­mand over­seas.

“Of course, it is ex­tremely re­gret­table that the tar­get was not reached in two years,” Kuroda told re­porters, de­clin­ing to com­ment on whether the govern­ment would look to ex­tend his term. Ja­pan’s prime min­is­ter hand-picked Kuroda to help drive his ‘Abe­nomics’ growth blitz of big spend­ing, easy money and struc­tural re­forms, un­veiled in early 2013.

The pro­gramme sharply weak­ened the yen­fat­ten­ing cor­po­rate prof­its-and set off a stock mar­ket rally that spurred hopes for a once-soar­ing econ­omy caught in a de­fla­tion­ary spi­ral of fall­ing prices and lack­lus­tre growth.

But growth re­mains frag­ile while in­fla­tion is far be­low the BoJ’s tar­get. Data last week showed con­sumer prices fell in Septem­ber for a sev­enth straight month. “What we’re see­ing now is nowhere near what the bank had said would hap­pen,” said Tsuyoshi Ueno, se­nior econ­o­mist at NLI Re­search In­sti­tute in Tokyo. “Their ini­tial pro­jec­tion was not very good.”

The BoJ hoped that con­sumers would spend more if prices were ris­ing, per­suad­ing firms to ex­pand op­er­a­tions and get­ting the world’s num­ber three econ­omy hum­ming. But wage growth has fallen be­low ex­pec­ta­tions, mean­ing work­ers have less money to spend. Abe’s prom­ises to cut through red tape-the key third plank of Abe­nomics-have also been slow in com­ing.

Ja­pan’s cen­tral bank Tues­day cut back its con­sumer price fore­cast for the cur­rent fis­cal year end­ing March 2017 and for the sub­se­quent two years.

In Septem­ber the bank re­vealed it would switch its fo­cus to 10-year govern­ment bonds and pledged to keep its yield around zero, by buy­ing as few or as many as nec­es­sary.

It said it would also cut back on the num­ber of longer-dated bonds it holds to try to re­duce the price of long-term se­cu­ri­ties. The plan is to in­crease their yield, mark­ing the lat­est ef­fort to per­suade Ja­panese con­sumers that the price of goods and ser­vices will rise in the fu­ture.

But an­a­lysts said the move was an ad­mis­sion of de­feat which high­lights the lim­its of cen­tral bank power. Af­ter yes­ter­day’s meet­ing the bank said: “Risks to both eco­nomic ac­tiv­ity and prices are skewed to the down­side”.

The bank did not al­ter mon­e­tary pol­icy yes­ter­day, in­clud­ing its 80 tril­lion yen ($763 bil­lion) an­nual as­set-purchase pro­gram. It also left un­changed a neg­a­tive in­ter­est rate pol­icy de­signed to spur lend­ing and growth.

“How­ever, pol­i­cy­mak­ers are show­ing con­cern about the sharp mod­er­a­tion in price pres­sures, and we still ex­pect fur­ther stim­u­lus in com­ing months,” Mar­cel Thieliant from re­search house Cap­i­tal Eco­nom­ics said in a commentary af­ter the BoJ de­ci­sion.

On Mon­day fig­ures showed Ja­pan’s fac­tory out­put and re­tail sales were flat in Septem­ber, sug­gest­ing tepid ex­pan­sion in July-Septem­ber eco­nomic growth. The econ­omy con­tracted in the last three months of 2015, be­fore bounc­ing back in Jan­uary-March with a 0.5 per­cent rise quar­ter-on-quar­ter and then a 0.2 per­cent ex­pan­sion in April-June. —AFP

BASEL: A pic­ture taken yes­ter­day at Syn­genta head­quar­ters in Basel shows the logo of Swiss pes­ti­cide and seed com­pany. The Euro­pean Com­mis­sion last week opened an in-depth in­ves­ti­ga­tion into state-owned ChemChina’s 40-bil­lion-euro takeover of Swiss seeds gi­ant Syn­genta to see if it would hurt com­pe­ti­tion. —AFP

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