TOKYO: Japan’s central bank cut its annual inflation forecast on Tuesday but kept its ultra-loose monetary policy unchanged, as its overseas counterparts start turning off the stimulus taps.
The BoJ slashed its inflation forecast to 0.8 per cent for the fiscal year through March 2018 from an earlier 1.1 per cent estimate and also slightly trimmed its projection for the following year to 1.4 per cent.
But the central bank maintained its 2.0 per cent inflation target — seen as crucial in a long battle against deflation that is blamed for holding back the once-booming economy — as separate data on Tuesday showed household spending and factory output edged down in September.
Japan’s inflation rate came in at 0.7 per cent in September.
“The consumer price index has continued to show relatively weak developments — mainly against the background that firms’ wage and price-setting stance has remained cautious,” the central bank said in a statement after its latest meeting.
The bank’s widely expected decision came days after the European Central Bank took the first step towards ending years of massive support to the euro zone economy.
Meanwhile, the US Federal Reserve, which has also started to wind down its crisis-era stimulus, is widely expected to go ahead with a third interest rate hike in December.
All eyes are now on BoJ governor Haruhiko Kuroda’s comments to reporters later on Tuesday to see if he hints at a timeline for easing off the bank’s record stimulus plan.
The BoJ expects to achieve its inflation objective sometime in the year to March 2020.
Officials had originally set in 2013 a two-year timeline when unveiling the bank’s massive monetary easing programme as part of Prime Minister Shinzo Abe’s push to kickstart growth in the world’s number-three economy, dubbed Abenomics.
Earlier on Tuesday, government figures showed household spending and factory output edged down in September, suggesting a rockier-than-expected recovery for the economy.
Japan’s prospects have recently improved, however, with investments linked to the Tokyo 2020 Olympics giving growth a shot in the arm.
Japan’s economy expanded by 0.6 per cent in the April-June period, notching up its sixth straight quarter of growth, the longest economic expansion in more than a decade.
However, wage hikes have been tepid and Tokyo has struggled to beat years of deflation.
Falling prices can discourage spending by consumers, who might postpone purchases until prices drop more or they might save money instead.
That puts pressure on businesses, creating a cycle in which firms then cut back on expanding production, hiring new workers or boosting wages. — AFP
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