BOJ keeps policy steady, postpones inflation target

The Bank of Japan is facing challenges as it tries to reflate the economy and coax consumers to spend more.
The Bank of Japan is facing challenges as it tries to reflate the economy and coax consumers to spend more.PHOTO: AGENCE FRANCE-PRESSE

TOKYO • The Bank of Japan (BOJ) kept monetary policy steady yesterday but once again pushed back the timing for achieving its ambitious inflation target, reinforcing views that it will lag well behind other major central banks in scaling back its massive stimulus programme.

With robust exports and private consumption pointing to a steady although modest recovery, the Japanese central bank slightly raised its growth forecasts and offered a more upbeat view of the world's third-largest economy than last month.

But stubbornly weak price growth forced the BOJ to cut its inflation forecasts, underscoring the challenges the central bank faces as it tries to reflate the economy and coax consumers to spend more.

"Recent price developments have been relatively weak as companies remained cautious in raising wages and prices," the BOJ said in a quarterly report on its long-term growth and inflation projections. "Risks to the economy and price outlook are skewed to the downside," it added, conceding it has proved harder than expected to change public perceptions that deflation will persist.

The BOJ pushed back by a year the timing for hitting its 2 per cent inflation target, in a fresh blow to Governor Haruhiko Kuroda's radical monetary experiment aimed at sustainably ending deflation. It now expects inflation will not reach that level until some time in the fiscal year ending in March 2020.

The BOJ has postponed the price target time frame six times since Mr Kuroda launched his huge asset-buying programme in 2013.

Said Tokai Tokyo Research Center economist Hiroaki Muto: "The BOJ's hands are tied. Central banks in the United States and Europe are headed towards higher rates and balance sheet reduction, but the BOJ is headed in the opposite direction. The message seems to be that the BOJ is prepared to maintain easy policy indefinitely."

As widely expected, the BOJ maintained its short-term interest rate target of minus 0.1 per cent and its 10-year government bond yield target of about 0 per cent.

The central bank also kept intact guidance that it would keep buying government bonds, so its holdings increase at an annual pace of 80 trillion yen (S$977 billion).

Its exports rose for a seventh straight month in June, led by shipments of cars and electronics, an indication external demand continues to support a gradual economic recovery and backing the central bank's upbeat economic view.

Ministry of Finance data showed that exports grew 9.7 per cent year on year last month.


A version of this article appeared in the print edition of The Straits Times on July 21, 2017, with the headline 'BOJ keeps policy steady, postpones inflation target'. Print Edition | Subscribe