TOKYO: The Bank of Japan maintained its massive stimulus program on Tuesday and signaled its conviction that a steady economic recovery will help achieve its ambitious price target without immediate, additional monetary easing.
The central bank, however, offered a slightly more downbeat view on the price outlook, though it stressed the slowdown in inflation was due to temporary declines in oil prices.
BOJ Governor Haruhiko Kuroda acknowledged that the oil drop could briefly pull Japan’s consumer prices back into negative territory but insisted the central bank’s policy is on track to ending nearly two decades of deflation and fitful growth.
“Our quantitative and qualitative easing policy is exerting its intended effect,” Kuroda told a news conference after the meeting, in which the BOJ, as widely expected, maintained its stimulus program that pledges to print money at an annual pace of 80 trillion yen ($660 billion).
“There’s absolutely no change to our stance of aiming to achieve our 2 percent inflation target at the earliest date possible with a timeframe of roughly two years,” said Kuroda, who will mark two years in office on Friday.
BOJ policymakers have sent a concerted signal to investors that while they expect inflation to grind to a halt in coming months, they see no need to respond unless the price weakness hits inflation expectations.
“Annual consumer inflation is seen moving around zero percent for the time being on declines in energy prices,” the BOJ said. That was a slightly less optimistic view than last month, when it said inflation will “slow for the time being.”
A slump in oil prices has slowed annual core consumer inflation to 0.2 percent in January, well below the BOJ’s 2 percent target, keeping alive expectations the central bank will top up its already aggressive asset-buying program this year.
“For the time being, the BOJ can continue to argue that the slowdown in inflation is due to supply-side problems in the oil market. Given that Japanese stocks are doing well, there’s no need to ease policy now,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management.
“However, the BOJ will probably have to push back its two-year timeframe (for hitting its price target) when it updates its forecasts in October, which will raise questions about monetary easing.”
Japan’s economy is emerging from last year’s recession thanks to a much-awaited rebound in exports and factory output.
But private consumption remains soft as households continue to curb spending after being hit by last year’s tax hike and the rising cost of living from a weak yen.
On Wednesday, Japan’s biggest firms will announce wage plans following annual talks with labor unions, the results of which will be key to the success of premier Shinzo Abe’s push to drive Japan sustainability out of deflation.
The BOJ has stood pat on policy since expanding its massive stimulus program in October last year to prevent slumping oil prices, and a subsequent slowdown in inflation, from delaying a sustained end to deflation.
