The Bank of Japan (BOJ) left its monetary stimulus unchanged as it updated price forecasts that confirm it is unlikely to meet its inflation target for years to come.
The BOJ stuck with its policy interest rates and asset-purchase targets, it said in a statement yesterday.
The central bank forecast in its quarterly outlook report that inflation would remain below its 2 percent target through until at least early 2021.
This would see it fall even further behind its global peers in shifting away from crisis-era monetary policies, as the US Federal Reserve raises interest rates and the European Central Bank halts its bond-purchase program.
While continuing with ultra-low borrowing costs and a huge asset-purchase program contributes to rising debt and financial risks in Japan, it is also capping gains in the yen, which helps exporters and the stock market.
With a long road still ahead for the BOJ and few tools left at its disposal, the focus has turned to the sustainability of its policy, and its side effects on markets and the economy.
The central bank took a slightly gloomier view of the risk balance to the economy this year.
The BOJ changed its view on risks to the economy in the fiscal year ending in March next year, saying they are skewed to the downside, compared with “generally balanced” previously.
Investors were also eager to hear JOB Governor Haruhiko Kuroda’s views during a news conference later yesterday on growing financial imbalances at home, the escalating US-China trade spat and the outlook for the global economy.
“Uncertainties are rising but it’s not time for the BOJ to act,” Norio Miyagawa, a senior economist at Mizuho Securities Co, said before the decision was announced. “The BOJ is watching how risks play out.”
The outlook report forecasts were as follows: fiscal 2018 core inflation 0.9 percent (previous forecast 1.1 percent); fiscal 2019 core inflation 1.4 percent (previous forecast 1.5 percent); fiscal 2020 core inflation 1.5 percent (previous forecast 1.6 percent); fiscal 2018 real GDP 1.4 percent (previous forecast 1.5 percent); fiscal 2019 real GDP 0.8 percent (previous forecast 0.8 percent); and fiscal 2020 real GDP 0.8 percent (previous forecast 0.8 percent).
The BOJ noted banks’ weakening profitability in its semi-annual financial system report released last week and expressed concern that because of their condition an external shock could cause them to pull back from lending more than usual, putting the economy at risk.
Atsushi Miyanoya, a former head of the BOJ’s financial system department, said losses could become widespread for Japanese banks in the near future.
“The BOJ is going to sit tight for a while,” Hiroaki Muto, chief economist at Tokai Tokyo Research Center, said before the announcement. “There is nothing more they can do for now to either accelerate inflation or alleviate the side effects on banks.”
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