Bank of Japan pegs low inflation for years, signals delay in stimulus withdrawal

The Bank of Japan kept its accommodative monetary policy settings on Thursday and forecasted inflation well below its 2% target for at least two years, bolstering market bets that it will lag other central banks in the reduction of crisis policies.

In new quarterly estimates, the BOJ lowered its consumer inflation forecast for the year ending March 2022 to 0% from 0.6% mainly due to the impact of reductions in mobile phone charges and a change in the base year of the price index.

The central bank also cut this year’s economic growth forecast due to sluggish consumption and the impact on factory output from supply disruptions caused by the COVID-19 pandemic.

The projections highlight the political gap between Japan and other economies.

In Australia, core inflation reached its fastest annual rate since 2015. Earlier Thursday, the Reserve Bank of Australia made no offer to buy a government bond which is the keystone of its stimulus program, fueling market speculation on an anticipated rise in interest rates. .

And overnight, the Bank of Canada rocked the markets by ending its bond purchases and signaling a rise as early as April.

“As other countries gradually move towards reducing monetary stimulus, the BOJ is living in a whole different world as an outlier in the global trend,” said Masamichi Adachi, chief economist at UBS Securities.

“Given lukewarm inflation expectations, the BOJ will stick to a policy of controlled easing of the yield curve at least until Governor Kuroda and his two deputies end their term in 2023.”

As widely expected, the BOJ kept its short-term interest rate target at -0.1% and that of 10-year bond rates around 0% during the two-day rate review that ended. Thursday.

BOJ Governor Haruhiko Kuroda reiterated the central bank’s willingness to maintain a massive monetary stimulus and added that the recent declines in the yen were “definitely positive” for the economy.

“It’s good for exports and increases the profits of yen-based companies overseas. It more than offsets the negative impact of rising import costs,” Kuroda said at a conference. Press.

INFLATION EXPECTATIONS “WARM UP”

The Japanese economy has emerged from the slump caused by last year’s pandemic, as strong foreign demand bolstered exports, offsetting some of the weakness in consumption.

But supply bottlenecks and chip shortages have hit manufacturers, clouding the outlook for the export-dependent economy.

Rising commodity prices pushed wholesale inflation in Japan to a 13-year high in September. But the pass-through to households has been remarkably slow due to weak domestic demand, which has kept consumer inflation around zero.

That leaves Japan as an outlier, especially as mounting global inflationary pressure is prompting more central banks to consider withdrawing their massive stimulus measures.

Economists around the world expect 13 of 25 central banks to hike rates at least once before the end of next year, according to a global Reuters poll.

Despite external headwinds to growth, the BOJ offered an optimistic view of Japan’s recovery prospects. He raised his growth forecast for the next fiscal year and called the recent slowdown in exports and production “temporary”.

“The economy is expected to recover as the impact of the pandemic gradually wears off,” he said, adding that the strength of the corporate sector would gradually spread to households.

The BoJ also said inflation expectations “are improving”, pointing to the possibility that rising wages will gradually make households more tolerant of price hikes.

“As companies become keen to change their pricing behavior, they may start to pass on costs and raise prices,” the BOJ said in the report.

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