Japan’s central bank yesterday again pushed back the timeline for hitting its inflation goal, the latest policy change that has raised questions about attempts to revive the deflation-plagued economy.
The Bank of Japan has for the past three years embarked on a bond-buying stimulus program to try to keep interest rates ultra-low and increase borrowing and spending.
The scheme was introduced by Bank of Japan Governor Haruhiko Kuroda in conjunction with a government spending drive that Japanese Prime Minister Shinzo Abe hoped would drag the economy out of years of torpor.
However, in a fresh sign that authorities are still struggling, the bank said it now expects to hit 2 percent inflation by March 2019 — four years later than its original target and the latest in a string of delays.
It also leaves the next move up to Kuroda’s successor, as the target date is almost a year after his term ends.
Abe hand-picked Kuroda to help drive his “Abenomics” growth blitz of big spending, easy money and structural reforms, unveiled in early 2013.
The program sharply weakened the yen — fattening corporate profits — and set off a stock market rally that spurred hopes for a once-soaring economy caught in a spiral of falling prices and lackluster growth.
However, more than three years later growth remains fragile while inflation is far below the central bank’s target. Data last week showed consumer prices fell in September for a seventh straight month.
“What we’re seeing now is nowhere near what the bank had said would happen,” said Tsuyoshi Ueno, senior economist at NLI Research Institute in Tokyo. “Their initial projection was not very good.”
The Bank of Japan hoped that consumers would spend more if prices were rising, persuading firms to expand operations and getting the world’s No. 3 economy humming.
However, wage growth has fallen below expectations, meaning workers have less money to spend. Abe’s promises to cut through red tape — the key third plank of Abenomics — have also been slow in coming.
In forex trading yesterday the US dollar was at ¥104.77, slightly off ¥104.82 in New York on Monday.
The bank also cut back its consumer price forecast for the current fiscal year, which ends in March, and for the subsequent two years.
The move is the latest policy tweak: The bank in September revealed that it would switch its focus to 10-year government bonds and pledged to keep its yield around zero by buying as few or as many as necessary.
It said it would also cut back on the number of longer-dated bonds it holds to try to reduce the price of long-term securities.
The plan is to increase their yield, marking the latest effort to persuade Japanese consumers that the price of goods and services will rise in the future.
However, analysts said the move was an admission of defeat that highlights the limits of central bank power.
After yesterday’s meeting the bank said: “Risks to both economic activity and prices are skewed to the downside.”
“On the price front, the momentum toward achieving the price stability target of 2 percent seems to be maintained, but is somewhat weaker than the previous outlook and thus developments in prices warrant careful attention going forward,” it said.
The bank did not alter monetary policy, including its ¥80 trillion (US$764 billion) annual asset-purchase program.
It also left unchanged a negative interest rate policy, which is designed to spur lending and growth.
“However, policymakers are showing concern about the sharp moderation in price pressures, and we still expect further stimulus in coming months,” Marcel Thieliant from research house Capital Economics said in a commentary after the decision.
Figures on Monday showed Japan’s factory output and retail sales were flat in September, suggesting tepid expansion in third-quarter growth.
The economy contracted in the last three months of last year before bouncing back in the January-to-March period with a 0.5 percent rise quarter-on-quarter and then a 0.2 percent expansion in the second quarter.
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