Bank of Japan delays inflation goal again
JAPAN’S central bank has again pushed back the timeline for hitting its inflation goal, the latest policy change that has raised questions about attempts to revive the deflationplagued economy.
The Bank of Japan has for the past 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 which Prime Minister Shinzo Abe hoped would drag the economy out of years of torpor.
But in a fresh sign that authorities are still struggling, the bank said it now expects to hit 2 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 Mr Kuroda’s successor as the target date is a year after his term ends.
Mr Abe hand-picked Mr Kuroda to help drive his “Abenomics” growth blitz of big spending, easy money and structural reforms, in early 2013.
The program sharply weakened the yen – fattening corporate profits – and set off a stock market rally that spurred hopes for a once-soaring economy caught in a spiral of falling prices and lacklustre growth. But more than three years later 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.
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. Mr Abe’s promises to cut through red tape – the key third plank of Abenomics – have also been slow in coming.
Japan’s central bank also cut back its consumer price forecast for the current fiscal year ending March 2017 and for the subsequent two years.
The move is the latest policy tweak. 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 economic activity and prices are skewed to the downside.
“On the price front, the momentum toward achieving the price stability target of 2pc seems to be maintained, but is somewhat weaker than the previous outlook, and thus developments in prices warrant careful attention going forward.”
The bank did not alter monetary policy, including its 80 trillion yen (US$763 billion) annual asset-purchase program.
It also left unchanged a negative interest rate policy designed to spur lending and and retail sales were flat in September. The economy contracted in the last three months of 2015, before bouncing back in January-March with a 0.5 percent rise quarter-onquarter and then a 0.2 percent expansion in April-June. –
A Japanese man sells fruits at a market in Tokyo yesterday. Prices have stagnated in Japan’s tepid economy.