BoJ cuts annual inflation forecasts
TOKYO: Japan’s central bank cut its annual inflation forecast yesterday but kept its ultra-loose monetary policy unchanged, even though overseas counterparts have started turning off the stimulus taps.
The Bank of Japan also maintained its 2.0-percent inflation target-seen as crucial in a long battle against deflation that has hobbled the once-booming economy-as separate data Tuesday showed household spending and factory output edged down in September.
Japan’s inflation rate came in at 0.7 percent in September. “The consumer price index has continued to show relatively weak developments-mainly against the background that firms’ wage- and pricesetting stance has remained cautious,” the central bank said in a statement after its latest meeting.
The BoJ slashed its inflation forecast to 0.8 percent for the fiscal year through March 2018 from an earlier 1.1 percent estimate, and also slightly trimmed its projection for the following year to 1.4 percent. The bank’s widely expected decision to leave its record stimulus unchanged came days after the European Central Bank took the first step towards ending years of massive support to the eurozone economy. Meanwhile, the US Federal Reserve, which has also started to wind down its crisis-era stimulus, is widely expected to go ahead with a third interest rate rise in December.
BoJ governor Haruhiko Kuroda yesterday stood behind the bank’s massive monetary easing program, a cornerstone of Prime Minister Shinzo Abe’s campaign to kickstart growth in the world’s numberthree economy, dubbed Abenomics. “There is no change to the Bank of Japan’s plan to continue robust monetary easing in order to achieve the 2.0 percent target,” he said.
The BoJ had in 2013 set a two-year timeline to achieve its inflation objective but now expect to achieve it sometime in the year to March 2020.
‘Mislead the market’ Despite bumper profits, Japanese businesses have been reluctant to introduce big pay rises because they are nervous about the future, Kuroda added. He declined to give an estimated timeline for the BoJ to ease off the stimulus pedal, saying it was still far off its price targets.
Discussing it may even “mislead” the market, Kuroda added. Japan’s prospects have recently improved, however, with investments linked to the Tokyo 2020 Olympics giving growth a shot in the arm. The economy expanded by 0.6 percent in the April-June period, notching up its sixth straight quarter of growth-the longest economic expansion in more than a decade.
Earlier yesterday, however, government figures showed household spending and factory output edged down in September, suggesting a rockier than expected recovery for the economy.
Wage rises have been tepid and Tokyo has struggled to overcome years of deflation. Falling prices can discourage spending by consumers, who may postpone purchases until prices drop further or save the money instead. That creates a cycle in which firms then cut back on expanding production, hiring new workers or increasing wages. The BoJ had hoped consumers would spend more if prices were rising, persuading firms to expand operations and getting the economy humming. But wage growth has fallen below expectations and workers have less money to spend as a result. — AFP