BoJ signals prolonged easing on pressure from virus, cuts price outlook

TOKYO — Japan’s central bank maintained its massive stimulus on Tuesday and projected inflation missing its 2% target for years to come, as fresh curbs to combat a spike in coronavirus disease 2019 (COVID -19) cases overshadow the boost to growth from solid global demand.

The Bank of Japan (BoJ) also warned of “high uncertainty” on how much the pandemic could drag on growth, signaling its readiness to keep its money spigot wide open for the foreseeable future.

Japan last week declared a third, two-week state of emergency for Tokyo, Osaka and two other prefectures to contain the pandemic, clouding prospects for a fragile economic recovery.

In a quarterly report released after Tuesday’s rate review, the BoJ slightly revised up its growth forecast and stuck to its view the world’s third-largest economy would recover as robust US and Chinese demand underpins exports.

But the central bank cut this year’s price forecast and predicted for the first time that inflation would stay well short of its 2% target beyond Governor Haruhiko Kuroda’s term, which ends in early 2023.

“It’s true that under the current forecasts, inflation won’t reach 1% even in fiscal 2023. That means achievement of our 2% target will be beyond fiscal 2024,” Mr. Kuroda told a news briefing.

But he said inflation was gradually expected to accelerate as Japan’s economy emerges from the pandemic’s initial hit.

“The global economy has recovered quite clearly and world trade has rebounded to prepandemic levels. Japan’s exports and output continue to increase, helping lift corporate profits and capital expenditure,” he said.

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As widely expected, the BoJ maintained its short-term interest rate target at -0.1% and that for 10-year bond yields around 0%.

“What’s notable was the BoJ’s cautious price outlook through fiscal 2023,” said Takashi Miwa, chief economist at Nomura Securities.

“It suggests the BoJ will have no choice but to continue its ultra-loose policy even after Mr. Kuroda’s current term ends.”

The BoJ trimmed its core consumer inflation forecast for the fiscal year that began in April to 0.1% from 0.5% estimated in January.

The cut was due largely to the effect of cellphone fee cuts, the BoJ said. When excluding such transitory factors, consumer inflation is moving on a “firm note,” it added.

“While it will take time, consumer inflation will gradually heighten towards the BoJ’s target,” the report said.

The central bank projects inflation to accelerate to 0.8% in fiscal 2022 and 1.0% the following year, the report showed.

Markets largely expected the BoJ to stand pat, after it conducted a review of its tools in March to make them sustainable enough to weather an expected prolonged battle to fire up inflation.

Eight years of stimulus attempts by Mr. Kuroda have failed to fire up inflation to his 2% target. Japan’s core consumer prices fell for the eighth straight month in March as the blow from the pandemic weighed on consumption and wages. —