BoJ chief warns over 'likely' delay on inflation target

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28 April, 2017

After wrapping up its meeting Thursday, the bank kept monetary policy unchanged and issued a relatively upbeat view on the world's number three economy, slightly upgrading its annual growth outlook.

Meanwhile, the inflation forecast for this fiscal was lowered to 1.4% from 1.5%. Talking about a specific exit strategy now would cause undue confusion in markets.

In the current forecast made in January, the BOJ expects core consumer inflation to hit 1.5 percent in the year ending in March 2018, followed by 1.7 percent in fiscal 2018.

"The bank now sees the economy "expanding" rather than just 'recovering, '" he noted, but added that lowering the inflation forecast indicated the BOJ was still struggling to increase inflation.

Japan's economy grew by 1.2% on Y-o-Y basis, in the October to December quarter, as per the data revised in last month.

With the economy in good shape, the BOJ is widely expected to leave unchanged its commitment to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield around zero percent through aggressive asset purchases.

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The BOJ also complained that public perceptions of future price rises remained weak with no clear signs of a pick-up.

The BOJ will continue with its stimulus to "achieve the price stability target of 2% as long as it is necessary for maintaining that target in a stable manner", it said. "If so, it's natural to believe that this will lead to an improvement in the output gap, tighten labour market conditions, thereby pushing up wages and inflation".

But central bank policymakers still have little to cheer about with consumer inflation barely above zero percent, as soft household spending discourages companies from raising prices.

The BOJ's concern about speculation that it might tighten policy underscores the change of tide in global central banking since the latter half of previous year, when market participants were still trying to guess how policy in Japan could be further eased. While a pioneer in deploying unorthodox stimulus, the BOJ is likely to lag behind its peers in withdrawing monetary support.

The U.S. Federal Reserve is already embarking on interest rate hikes, while the European Central Bank may send a small signal in June towards reducing stimulus.

In the bank's quarterly economic outlook report, the BOJ upgraded its assessment of the economy, saying that "Japan's economy has been turning toward a moderate expansion on the back of global economic growth and recovery in domestic demand".


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