The Bank of Japan (BOJ) maintained its massive stimulus program yesterday and signaled its conviction that a steady economic recovery will help achieve its ambitious price target without immediate, additional monetary easing.
However, the central bank offered a slightly more downbeat view on the price outlook, although it emphasized that the slowdown in inflation was due to temporary declines in oil prices.
Bank Governor Haruhiko Kuroda acknowledged that the oil drop could briefly pull Japan’s consumer prices back into negative territory, but insisted that the central bank’s policy is on track to ending nearly two decades of deflation and fitful growth.
Photo: Reuters
“Our quantitative and qualitative easing policy is exerting its intended effect,” Kuroda told a news conference after the meeting, in which the bank, as widely expected, maintained its stimulus program that pledges to increase monetary supply at an annual pace of ¥80 trillion (US$658.6 billion).
“There is absolutely no change to our stance of aiming to achieve our 2 percent inflation target at the earliest date possible with a timeframe of roughly two years,” said Kuroda, who is to mark two years in office on Friday.
Bank policymakers have sent a concerted signal to investors that, while they expect inflation to grind to a halt in coming months, they see no need to respond unless the price weakness hits inflation expectations.
“Annual consumer inflation is seen moving around zero percent for the time being on declines in energy prices,” the bank said.
That was a slightly less optimistic view than last month’s, when it said inflation would “slow for the time being.”
A slump in oil prices has slowed annual core consumer inflation to 0.2 percent in January, well below the BOJ’s 2 percent target, keeping alive expectations the central bank will top up its already aggressive asset-buying program this year.
“For the time being, the BOJ can continue to argue that the slowdown in inflation is due to supply-side problems in the oil market. Given that Japanese stocks are doing well, there is no need to ease policy now,” Sumitomo Mitsui Asset Management senior economist Hiroaki Muto said.
“However, the BOJ will probably have to push back its two-year timeframe [for hitting its price target] when it updates its forecasts in October, which will raise questions about monetary easing,” Muto added.
The bank has kept its policy since expanding its stimulus program in October last year to prevent slumping oil prices — and a slowdown in inflation — from delaying a sustained end to deflation.
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