The Bank of Japan (BOJ) yesterday issued a more downbeat assessment of the world’s third biggest economy, as a broader global slowdown affects exports and production.
The central bank kept its ultra-loose monetary policy in place after a two-day policy board meeting, as it battles to safeguard fragile growth and kindle inflation that is stuck stubbornly below its 2 percent target.
The bank added to its monetary policy statement the view that “exports and production have been affected by the slowdown in overseas economies.”
However, the BOJ also argued that “Japan’s economy is expanding moderately” and maintained its aim of keeping the short-term policy interest rate at about minus-0.1 percent and the yield on 10-year bonds at about zero.
BOJ Governor Haruhiko Kuroda defended the 2 percent inflation target that guides his monetary stimulus program after the government advocated taking a flexible approach to the goal.
“There’s no change to the BOJ’s policy of aiming to bring about stable prices while considering the economy, prices and the financial environment overall,” Kuroda said in a news conference when asked if he is sticking with the 2 percent target.
With policy side effects piling up, there are growing calls for the BOJ to rethink its commitment to 2 percent inflation — which many economists now deem unrealistic.
Japanese Minister of Finance Taro Aso this week joined the fray, saying that things had changed since the BOJ and the government agreed to the target in 2013, and that sticking to it without flexibility could be problematic.
Kuroda said he would not comment directly on what Aso had said.
“The 2 percent target is something that the Bank of Japan’s policy board has decided by itself. We think that making this a reality is necessary to achieve the BOJ’s mission of price stability,” he said. “As I have said before, simply getting to 2 percent is not enough,” Kuroda said. “The BOJ is aiming for an economy where corporate profits or wages increase, and as investment and consumption increase, prices moderately rise.”
Kuroda has come under fire over the effectiveness of his monetary easing program and how he intends to return the bank’s policy to normal.
In January, the governor was forced to revise down the BOJ’s inflation forecasts, a step seen as further evidence that authorities are unable to boost prices.
The bank wants to achieve stable growth with prices rising 2 percent a year, but it expects inflation of 0.9 percent for the fiscal year ending in March next year.
The central bank’s measured downgrade of the Japanese economy comes as economists are increasingly viewing China with caution.
Beijing’s decelerating exports and imports, as it battles a tense trade row with the US, have contributed to Japan’s expanding trade deficit, with China-bound exports in January falling 17.4 percent, the sharpest drop since January 2016.
Additional reporting by Bloomberg
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