BoJ revises down inflation target
KUWAIT: Japan’s central bank revised down inflation forecasts yesterday, making only minor tweaks to a monetary policy that has so far fallen short of lifting prices and boosting the world’s third-largest economy. There was widespread speculation in the run-up to the Bank of Japan’s two-day meeting that it would adjust its ultra-loose policy, seeking to offset the effects of negative interest rates and its massive bond and asset buying.
But the bank offered only marginal adjustments, introducing some flexibility, and revised down further its inflation forecasts through fiscal 2020. The BoJ has struggled for years to reach the 2.0 inflation rate thought necessary to turbocharge Japan’s economy, and has defended its decision to maintain its monetary easing even as other central banks tighten policy. At a press conference, BoJ Governor Haruhiko Kuroda acknowledged that the inflation goal would not be met in the next few years, but declined to give a new timeline.
“Like other central banks, we do not indicate detailed schedules,” he said. “Maintaining the momentum will lead to achieving the 2.0 percent target as early as possible. I think that the momentum towards the 2.0 percent is firmly maintained.” Analysts said the bank was standing by its easing policy and the shifts were intended to shore up the program by offsetting negative side effects. “Despite the adjustment, the statement indicates the Bank of Japan is still sticking to the status quo,” said Masakazu Satou, senior analyst at Gaiame Online.
The bank has been criticized for the consequences of its policy, including concerns that its massive purchases are skewing the bond market and financial markets. In a nod to those concerns, it said it would seek to keep yields on benchmark 10-year government bonds around zero percent, but added “the yields may move upward and downward to some extent” and said it would “conduct purchases in a flexible manner”.
The bank also said it would shift its purchases of exchange-traded funds away from the Nikkei towards the Topix exchange, to address concerns it is inadvertently hiking stock prices.
‘Deflation mindset’
The BoJ’s aggressive monetary easing has been the key weapon in the battle against deflation, but the central bank has been forced to regularly abandon deadlines for the 2.0 percent goal. Earlier this year, it dropped a 2020 target for the figure, and on Tuesday it revised down its forecasts, saying it now expected inflation for fiscal 2018 of just 1.1 percent, rising to 1.5 percent in fiscal 2019 and 1.6 percent for fiscal 2020. Experts say several factors are keeping prices low, including stagnant salaries. — AFP