Tags: Japan | bank | BoJ | inflation

Bank of Japan Slashes Inflation Outlook, Boosts Growth Forecast

Wednesday, 21 January 2015 07:32 AM

The Bank of Japan on Wednesday slashed its inflation outlook as plunging oil prices dent efforts to slay years of deflation, but policymakers still boosted their growth forecasts and said the economy was rebounding.

The BoJ, which held off fresh easing measures after a two-day policy meeting, said inflation for the year starting in April would come in at 1.0 percent, well down from an earlier 1.7 percent forecast.

But the economy would expand by 2.1 percent, up from an earlier 1.5 percent forecast, it said.

The price downgrade underscores how reaching the BoJ's 2.0 percent inflation target by early next year looks unlikely, and it may ramp up expectations for another round of monetary easing to kickstart the world's number three economy.

"We continue to think that policymakers are too sanguine on inflation," said Marcel Thieliant at Capital Economics.

"The chances of hitting the inflation target are slim without additional monetary stimulus."

BoJ chief Haruhiko Kuroda insisted that the bank was still on track to reach its goals, and that the BoJ never claimed it would hit its goal in exactly two years.

The target followed the launch of Prime Minister Shinzo Abe's growth project, dubbed Abenomics, in early 2013. Observers have widely interpreted the bank's original deadline as early next year.

"Given the drastic moves in crude oil prices recently, the timing could move forward or backward," Kuroda told reporters after the bank's policy meeting.

"We're saying (the timing) is centered on fiscal 2015, we're not saying within fiscal 2015," he added.

Plunging oil prices — they have lost more than half their value from above $100 in June last year — would ultimately benefit resource-poor Japan and give the wider economy a shot in the arm, generating higher prices, Kuroda said.

"For Japan, which imports almost all of its crude oil, the price declines are a positive and will lead to stronger corporate earnings and firms' real purchasing power," he said.

The BoJ's inflation target is a cornerstone of Tokyo's wider bid to turn around years of tepid growth by generating price rises and prompting 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 and throwing the success of 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.

The inflation rate for the year starting April 2016 would come in at 2.2 percent, it said.

Policymakers also tweaked some lending programs that were due to expire, extending them by a year and boosting their volume.

"The main message from today's decision is growth will accelerate and inflation is fine, if the effects of oil are discounted," Koya Miyamae, an economist at SMBC Nikko Securities, told Bloomberg News.

"Still, by October it will be hard for the BoJ to argue inflation will reach two percent in or around fiscal 2015. That's when they will be forced to expand stimulus."

Japan's massive asset-buying program has so far not worked as well as expected, the International Monetary Fund said this week, with the economy expected to grow just 0.6 percent this year, picking up to a still-sluggish 0.8 percent in 2016.

"At this stage potential medium-term growth in Japan is very, very low," Olivier Blanchard, the IMF's chief economist, told a press briefing in Beijing.

"So far both private domestic and foreign demand have disappointed."

The BoJ surprised markets in October last year when it announced an expansion of its huge asset-buying program — similar to the Fed's quantitative easing plan.

The scheme is aimed at trying to pump cash into the banking system at a current annual pace of about 80 trillion yen ($679 billion) and, in turn, stimulate the economy.

© AFP 2018

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The Bank of Japan on Wednesday slashed its inflation outlook as plunging oil prices dent efforts to slay years of deflation, but policymakers still boosted their growth forecasts and said the economy was rebounding.The BoJ, which held off fresh easing measures after a...
Japan, bank, BoJ, inflation
Wednesday, 21 January 2015 07:32 AM
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