Bank of Japan raises growth forecast

> Cautious but optimistic that 2% inflation target can be achieved

TOKYO: The Bank of Japan (BoJ) kept monetary policy steady and maintained its optimistic price forecasts yesterday, signalling its confidence that a steady economic recovery will accelerate inflation to its 2% target without additional stimulus.

Markets are focusing on what BoJ governor Haruhiko Kuroda has to say on US President Donald Trump’s protectionist trade stance, particularly with Trump taking direct aim at Japan’s powerful car industry.

As widely expected, the BoJ maintained a pledge to guide short-term interest rates at minus 0.1% and the 10year government bond yield to around 0%. It also left unchanged a loose commitment to buy government bonds at the current pace so the balance of its holdings rise at ¥80 trillion (RM3.1 trillion) a year.

“I expect inflation to pick up, but this will lag economic growth,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities. “The BoJ can afford to stay on hold because it has already pushed out the timing for (meeting) its inflation target a lot.”

In a quarterly review of its forecasts, the BoJ raised its growth estimates for the fiscal year beginning in April and the following year, nodding to brightening prospects for exports.

But the central bank left unchanged its already optimistic inflation forecasts for the coming years despite external factors that push up prices.

“Risks to both economic activity and prices are skewed to the downside,” the BoJ said in the quarterly forecast report. “The momentum for achieving our 2% inflation target is maintained, but lacks strength,” it said.

With domestic demand still weak, many central bankers remain wary on whether price rises driven by external factors could transform into sustained price growth. The BoJ said it expects inflation to hit 2% target by around March 2019, unchanged from its forecast in November. – Reuters