The Bank of Japan (BoJ) yesterday slashed its annual inflation forecast and once again delayed its timetable for hitting a 2 percent target as the economy struggles to gain traction despite years of stimulus.
Central bankers also decided to maintain the bank’s ultra-loose monetary policy at a time when their counterparts in other major economies from the Americas to Europe consider ending the era of cheap cash.
Investors were relieved over the bank’s decision. Tokyo’s benchmark Nikkei 225 index rose 0.62 percent, or 123.73 points, to end at 20,144.59, while the TOAX of all first-section issues gained 0.69 percent, or 11.14 points, to 1,633.01.
The yen fell against other major currencies, a plus for Japanese exporters.
“Yenselling accelerated following the announcement as the delay in [achieving] the inflation target generally means the BoJ would have to continue its easing in sharp contrast to other major central banks moving to tightening,” said Tomohiro Nishida, a dealer at Sumitomo Mitsui Trust Bank Ltd.
The US dollar climbed to ￥112.12 yesterday afternoon from ￥111.84 in New York on Wednesday.
The central bank said it now expects the core consumer price index to rise 1.1 percent in the year to March, down from its April estimate of 1.4 percent, while its March 2019 prediction was cut to 1.5 percent from 1.7 percent.
In a statement after the policy meeting the bank also said it now expects to achieve the 2 percent objective sometime in the year to March 2020.
Officials had in 2013 set a two-year time line when unveiling the bank’s massive monetary easing program as part of Japanese Prime Minister Shinzo Abe’s push to kick-start growth in the world’s third-largest economy.
“The BoJ has already pushed out the time line several times. Now four years have passed and there is no sign the inflation rate is rising,” Masaaki Kanno, chief economist at Sony Financial Holdings Inc in Tokyo and a former BoJ official, told Bloomberg TV.
However, the bank did lift its economic growth outlook to 1.8 percent for the current fiscal year from its previous estimate of 1.6 percent. It also hiked its fiscal 2018 outlook by 0.1 percentage point to 1.4 percent.
Analysts were skeptical about whether the BoJ would achieve its goals.
“Even after today’s downward adjustments, the bank’s inflation forecasts for the current fiscal year remain too high and there is little chance of hitting the 2 percent target next year either,” Capital Economics Ltd economist Marcel Thieliant, said in a commentary. “The upshot is that we expect the bank to leave policy settings unchanged for the foreseeable future.”
Government and central bank officials have blamed external factors, such as falling energy prices and uncertainty related to emerging economies, for failure to achieve the target.
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