Bank of Japan slashes inflation outlook, boosts growth forecast

The Bank of Japan has decided to maintain its pledge to increase base money, or cash and deposits at the central bank and extended the deadline of two loan programme. -- PHOTO: REUTERS
The Bank of Japan has decided to maintain its pledge to increase base money, or cash and deposits at the central bank and extended the deadline of two loan programme. -- PHOTO: REUTERS

TOKYO (AFP) - The Bank of Japan on Wednesday slashed its inflation outlook as plunging oil prices dent its efforts to slay deflation, but policymakers boosted their growth forecasts, saying the economy was rebounding.

The bank, which held off fresh easing measures after a two-day policy meeting, said inflation for the year starting in April would come in 1.0 per cent, well down from an earlier 1.7 per cent forecast, while the economy would expand by 2.1 per cent, up from 1.5 per cent.

The price downgrade underscores how the bank's bid to reach a 2.0 per cent inflation target by early next year looks increasingly unlikely, and will raise speculation that the BoJ will be forced to unleash further stimulus to kickstart the world's number three economy.

The central bank's inflation target is a cornerstone of Tokyo's wider bid to turn around years of tepid growth by generating price rises and prompt firms to boost their hiring and expansion plans.

But a sales tax rise in April slammed the brakes on consumer spending, plunging the economy into recession during the third quarter and throwing Prime Minister Shinzo Abe's growth project, dubbed Abenomics, into question.

The BoJ, however, on Wednesday kept up its view that the economy was on track for a recovery, and said its longer-term inflation view remains unaffected.

"With regard to the CPI (consumer price index), the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude oil prices," the bank said in a statement.

The rest of the statement was largely a mirror of the one issued after the BoJ's meeting in December, when the bank struck a more upbeat view of economy, saying exports were showing signs of picking up while factory output was bottoming out.