The Bank of Japan (BOJ) refrained from boosting unprecedented easing as accelerating inflation marks progress in its bid to stamp out 15 years of deflation in Asia’s second-biggest economy.
Bank of Japan Governor Haruhiko Kuroda’s board stuck to its pledge to expand the monetary base by between ￥60 trillion and ￥70 trillion (US$671 billion) annually yesterday after a two-day meeting in Tokyo, in line with the forecasts of all 36 economists surveyed by Bloomberg News.
The BOJ maintained its forecast that core consumer prices will rise 1.9 percent in the year starting in April next year, excluding the effect of sales-tax increases, and scrapped a reference to the economy facing “uncertainty.”
With the BOJ’s preferred inflation gauge at more than half of its target 2 percent pace, analysts from HSBC Holdings PLC to Daiwa Securities Co have pushed back forecasts for when the central bank may add to easing. Kuroda’s policymakers may wait to assess trends in wages and the effects of the sales-tax increase in April before deciding on any extra stimulus.
“The Bank of Japan is saying it’s gaining confidence that it will achieve its target,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute in Tokyo and former central bank official. “The question now is whether they will act to support the recovery as the sales tax is raised.”
Consumer prices excluding fresh food rose 1.2 percent in November last year from a year earlier, the fastest pace since 2008 and approaching the 2 percent target set a year ago. For the final quarter of last year, analysts estimate inflation was 1.1 percent, according to a separate poll, nearly three times economists’ 0.4 percent forecast in a survey in April last year.
A BOJ statement released after the decision showed that the lowest board member inflation estimates increased for all three fiscal-year periods from projections made in October last year. The BOJ’s inflation forecasts are median estimates of the nine board members.
The statement said that Japan’s economy has continued to recover moderately, and cited front-loaded demand ahead of the April sales-tax bump. Overseas economies, mainly advanced ones, are starting to recover, the BOJ said.
The percentage of economists predicting an expansion of stimulus between April and June fell to 33 percent from 56 percent three months ago in the latest Bloomberg survey, which was conducted from Jan. 10 to Wednesday last week.
The number of analysts forecasting the central bank will add to its easing in July or later doubled to 48 percent from three months ago, the survey showed. The rest of the economists see additional loosening this quarter.
The strength of Japan’s economic recovery will be tested after the sales tax is increased to 8 percent in April from 5 percent, a move that economists forecast will trigger a 4.1 percent annualized contraction in the second quarter.
“The BOJ may act for political reasons after the sales tax is raised to show its stance to support the economy, given Abe’s efforts to end deflation,” Tokyo-based Daiwa Institute of Research chief economist Mitsumaru Kumagai said before yesterday’s announcement.