BOJ keeps current policy on stimulus

Jiji Press

Bank of Japan Gov. Haruhiko Kuroda speaks at a press conference Friday afternoon in Tokyo.

BloombergTOKYO (Bloomberg) — The Bank of Japan stayed the course with its monetary stimulus on Friday at Gov. Haruhiko Kuroda’s final policy meeting before his new term begins next month.

The BOJ kept its yield-curve control settings and asset purchases unchanged, a result forecast by all economists surveyed by Bloomberg.

With inflation still far from the BOJ’s 2 percent target, Kuroda made it clear during parliamentary confirmation hearings this week that “powerful monetary easing” is here for a while. The two new deputy governors who are set to join the board later this month also endorsed continued monetary easing.

This will put the BOJ further behind its global peers, who are either raising interest rates or turning toward normalizing policy. The European Central Bank on Thursday unexpectedly dropped a pledge to ramp up bond buying if the economy deteriorates.

With a stronger yen threatening progress on inflation, economists have pushed back their forecast dates for changes to the BOJ’s stimulus program. The currency has gained around 5 percent this year and last week it touched the strongest level since November 2016.

“The consensus is that they will keep the policy unchanged not only this time but also for a while,” said Maiko Noguchi, a senior economist at Daiwa Securities Co. and a former BOJ official. “The next focal point will be how new faces will affect and change the regime,” she said.

In its policy statement, the BOJ again said inflation expectations have been “more or less unchanged.” It also repeated its view that domestic demand is likely to follow an uptrend, with inflation rising toward 2 percent, mainly due to an improvement in the output gap and higher medium- to long-term inflation expectations. Housing investment has been weakening somewhat, it said.

The policy vote was 8-1, with Goushi Kataoka again dissenting.

Kataoka said he saw a low possibility at this point that inflation would rise to 2 percent and argued for additional easing measures, according to the statement.

Kuroda jolted markets last week — adding to the yen’s strength — when he told lawmakers that in around fiscal 2019 the BOJ would start thinking about an exit strategy. But this assumes the inflation target will be met, and what he didn’t mention was that seven of nine current board members view risks to its price forecasts as tilted to the downside.

More than 90 percent of analysts surveyed by Bloomberg don’t believe the BOJ will hit its price target by its stated time frame of around fiscal 2019.

With Prime Minister Shinzo Abe’s coalition government holding a majority in parliament, lawmakers will almost certainly approve Kuroda’s reappointment, as well as the nominations of Masayoshi Amamiya, a veteran BOJ policy architect, and Masazumi Wakatabe, a reflationist, as deputy governors.

Japan’s subdued inflation stands at odds with eight quarters of economic growth and an unemployment rate of 2.4 percent — the lowest since 1993. Core inflation, which excludes fresh food, was 0.9 percent in January.

Exports have been a driving force in Japan’s recovery and the BOJ upgraded its assessment of overseas economies in its statement, describing them as continuing to grow firmly on the whole.

Yet the rising risk of a global trade war is darkening the outlook.Speech

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