Bank of Japan shifts focus away from 2% inflation goal

TOKYO: The widening economic fallout from the coronavirus outbreak and soft consumption are forcing the Bank of Japan (BOJ) to message more strongly that it is no longer inclined to chase its elusive 2% inflation target, sources familiar with its thinking say.

After years of trying to vanquish deflation by setting an ambitious price goal, Japan’s waning recovery prospects and a dwindling policy tool-kit have made the BOJ more open to conceding that the best it can do is to keep the economy afloat, the sources said.

The need to protect the world’s third-largest economy from a sharp downturn has became a more urgent task for the BOJ, particularly as external risks such the Sino-US trade war and a coronavirus outbreak in China weaken its ability to create a virtuous growth cycle.

“While the inflation target remains very important, the focus of the BOJ’s policy has shifted toward keeping the economy on a sustainable recovery path,” one of the sources said.

The world’s third-largest economy shrank at the fastest pace in six years in the December quarter on soft consumption.

The BOJ has already been watering down its 2% price target, after years of massive stimulus only succeeded in partially firing up inflation even when the economy was in good shape.

Now, as the economy slows and faces business disruptions from the coronavirus epidemic, central bank policymakers are shifting their attention further away from the price goal, the sources say. – Reuters