The Bank of Japan (BOJ) yesterday cut its annual growth and inflation forecasts, as a slate of tepid data highlight weakness in the world’s third-largest economy, while analysts expect further monetary easing later in the year.
GDP would expand 2 percent in the year to March next year, while inflation is seen at 0.8 percent, the BOJ said in a semi-annual report.
That compares with previous estimates of 2.1 percent and 1 percent respectively.
The revision to the fiscal year forecast came after the central bank wrapped up a policy meeting yesterday where it held off fresh easing measures, despite flatlining inflation that is defying a two-year-old stimulus program.
In a widely expected decision, the BOJ stood pat on its record asset-purchase program, which is adding about ¥80 trillion (US$672 billion) to the money supply every year in a bid to jack up prices and kickstart growth.
The yen got a boost, with the US dollar slipping to ¥118.73 from ¥118.85 before the decision. The pickup in the yen, bad news for Japanese exporters, helped send Tokyo’s benchmark Nikkei 225 tumbling 2.69 percent yesterday.
Earlier in the morning, official figures showed factory output fell by a less-than-expected 0.3 percent in March — tepid figures that highlight an anemic recovery.
The reading from Japan’s trade ministry marked an improvement from the 3.1 percent drop registered in February, and beat the market median forecast for a 2.3 percent drop in a survey of economists by the Nikkei Shimbun business daily.
A survey of manufacturers’ output projections released with the data said production was expected to rise 2.1 percent last month before slipping 0.3 percent this month.
Economists have said the yen will ramp up its easing program, likely later this year, to bring Japan closer to its 2 percent inflation target, which is a cornerstone of Japanese Prime Minister Shinzo Abe’s drive to conquer stagnant or falling prices and revive the economy.
“The bank obviously considers the slowdown in inflation since the autumn to be a temporary phenomenon, blaming it mostly on the plunge in energy prices. In our view there is more to it than that,” Marcel Thieliant at Capital Economics said in a commentary after the decision.
“The economic recovery is stalling, wages are barely rising, and inflation excluding food and energy is near zero, too. What’s more, it is far from clear that quantitative and qualitative easing has lifted inflation expectations among households and firms,” he said.
Thieliant added that fresh loosening of policy was on its way, a widely held view among economists.
“We ... remain convinced that more monetary easing will be needed before too long,” Thieliant said, pointing to July or October as likely timelines.
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