BoJ pushes back inflation target for 6th time, keeps policy steady

TOKYO: The Bank of Japan kept monetary policy steady on Thursday but again pushed back the timing for achieving its inflation target, reinforcing expectations it will lag well behind other major central banks in scaling back its massive stimulus programme.

With robust exports and private consumption pointing to a steady though modest recovery, the Japanese central bank slightly raised its growth forecasts and offered a more upbeat view of the world’s third-largest economy than last month.

But stubbornly weak price growth forced the BoJ to cut its inflation forecasts, underscoring the challenges the central bank faces as it tries to reflate the economy and coax consumers to spend more.

“Recent price developments have been relatively weak, as companies remained cautious in raising wages and prices,” the BoJ said in a quarterly report on its long-term growth and inflation projections.

“Risks to the economy and price outlook are skewed to the downside,” it said.

The BoJ pushed back by a year the timing for hitting its ambitious 2% inflation target, in a fresh blow to governor Haruhiko Kuroda’s radical monetary experiment aimed at sustainably ending deflation.

It now expects inflation will not reach that level until some time in the fiscal year ending in March 2020.

The BoJ has now pushed back the price target timeframe six times since Kuroda launched his huge asset-buying programme in 2013.

As widely expected, the BoJ maintained its short-term interest rate target of minus 0.1% and its 10-year government bond yield target of around zero.

The central bank also kept intact guidance that it would keep buying government bonds so its holdings increase at an annual pace of 80 trillion yen (US$714 billion).

GROWTH, PRICE MISMATCH 

At his post-meeting news conference (0630 GMT), Kuroda is likely to remind markets of the BoJ’s resolve to maintain ultra-easy policy until inflation is sustainably above target.

That would put the BoJ far behind the US Federal Reserve, which has been gently raising rates and is expected to announce detailed plans in September to start shrinking its more than US$4 trillion balance sheet.

The European Central Bank (ECB) is also expected to announce plans in coming months to taper its asset purchases as growth picks up on the continent, according to a Reuters poll.

In a testament to the improving economy, the BoJ raised its growth projections for the current fiscal year to 1.8% from 1.6% forecast three months ago, and to 1.4% from 1.3% for the following year.

“Japan’s economy is expanding moderately,” the BoJ said, a brighter assessment than last month when it said it was turning toward a moderate expansion.

But it slashed its consumer inflation forecasts for the year ending in March 2018 and the following year, to 1.1% from 1.4%, and to 1.5% from 1.7%.

Japan’s economy grew at an annualised 1.0% in the first quarter thanks to robust global demand and a pick-up in private consumption.

Data earlier on Thursday showed its exports rose for a seventh straight month in June.

But core consumer prices in May rose just 0.4% from a year earlier, well below the BOJ’s 2% target.

Tokyo inflation, a leading indicator of nationwide prices, was flat in June from a year earlier, stunning BoJ officials who expected a stronger reading given recent signs of improving consumption. - Reuters