The Bank of Japan (BOJ) declined to step up its monetary stimulus yesterday, even as it postponed its timeframe for reaching a 2 percent inflation target for the second time this year.
BOJ Governor Haruhiko Kuroda and his fellow board members said in a report detailing updated economic projections that the slide in oil prices was to blame for reduced consumer-price forecasts for the coming two years.
The bank now sees the inflation target reached about the six-month period through March 2017. At the start of this year, the expectation was for the goal to be realized in the fiscal year through March next year.
Photo: Reuters
Kuroda defended the decision to keep policy unchanged, saying that the central bank is not losing credibility and that its actions so far — implementing an unprecedentedly large monetary stimulus program — are having the intended effects.
The timing of reaching the inflation target depends on oil, he told reporters in Tokyo.
Kuroda, 71, reiterated that the BOJ will not hesitate to adjust policy if necessary and he did not see limits to further policy steps.
Yesterday’s policy decision was seen as a close call by economists, given evidence of waning inflation expectations, lackluster domestic spending and exports that have been hurt by China’s deceleration.
Under its new forecasts, the BOJ board now sees prices rising 0.1 percent this fiscal year, down from 0.7 percent before, and 1.4 percent next year.
The bank also said that risks to the outlook for the economy and prices are skewed to the downside.
Most private economists for months have said that the BOJ’s inflation targets were unrealistic.
Data earlier yesterday showed the BOJ’s main price gauge, which strips out fresh food costs, dropped 0.1 percent year-on-year for a second straight month. After removing both food and energy, prices climbed 0.9 percent last month.
Other recent economic data have been mixed. Retail sales unexpectedly dropped last month, exports rose while industrial production increased 1 percent.
BOJ board member Takahide Kiuchi dissented from yesterday’s decision again, proposing that the bank cut the bond purchase target to ￥45 trillion (US$373.3 billion) a year. That proposal was defeated by the other eight board members.
“Pressure will only mount for more easing,” Masamichi Adachi, an economist at JPMorgan Chase & Co and a former BOJ official, said before yesterday’s decision. “The economy is clearly not strong enough to suggest 2 percent inflation is under way.”
The BOJ board next meets on Nov. 18 and 19.
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