The Bank of Japan kept its policy unchanged as Governor Haruhiko Kuroda tries to head off a drop in consumer prices two years after he began unprecedented stimulus in the world’s third-biggest economy.
The central bank maintained a plan to expand the monetary base at an annual pace of 80 trillion yen ($666 billion), as forecast by all 34 economists in a Bloomberg News survey.
Kuroda’s bid to spur 2 percent inflation is facing a test, with the BOJ’s main gauge sinking to zero because of cheaper oil and the weakness in Japan’s recovery from recession. While most economists forecast another boost in stimulus by October, policy makers are confident for now that a virtuous cycle of rising profits, wages and expectations for price gains will lift inflation to their goal.
“The BOJ appears to be confident about the outlook for the economy,” said Junko Nishioka, an economist at Sumitomo Mitsui Banking Corp. “It’s unlikely the BOJ will move later this month, even if they have to cut their inflation forecast because of oil.”
The BOJ’s effort to reflate the economy is running into a number of challenges, from steeper-than-forecast declines in retail sales and industrial production to signs that companies aren’t convinced Japan’s economic prospects are looking up.
The yen rose 0.1 percent to 120.11 per dollar at 1:10 p.m. in Tokyo, losing about 9 percent since Kuroda added to monetary easing in October. The Topix index of shares advanced 0.8 percent.
Yutaka Harada, who participated in his first meeting since joining the nine-member policy board on March 26, voted in line with the majority. The only dissenter Wednesday was Takahide Kiuchi, who has opposed Kuroda since May 2013.
Kiuchi proposed reducing the pace of expansion in the monetary base to about 45 trillion yen per year. The proposal was voted down by a majority vote.
Twenty-two of 34 economists forecast the BOJ will expand stimulus by the end of October, according to a Bloomberg survey conducted from March 31 to April 3. Three of those see action on April 30: Credit Suisse Group AG, Mitsubishi UFJ Morgan Stanley Securities Co. and Mitsubishi UFJ Research and Consulting Co.
Kuroda has warned that consumer prices may decline as the effects of the 50 percent tumble in oil prices wash through the economy. Any temporary drop will give way to a “considerable” pick up inflation in the second half of the fiscal year that runs through March 2016, he said last month.
Supporting his optimism are data pointing to a sustained elevation in inflation expectations and a narrowing gap between demand and supply in the economy, the two key channels the BOJ is counting on to attain its price target.
Companies surveyed by the central bank forecast inflation at 1.4 percent in a year while households see it at 3 percent. The jobless rate dropped to 3.5 percent in February, near its lowest since 1997, while companies are reporting the biggest shortage of workers since 1992, according to a BOJ survey last week.
The BOJ is leading the charge on reflationary policies of Prime Minister Shinzo Abe, who took power in December 2012 with a pledge to end two decades of economic stagnation. Kuroda, who originally sought to achieve the 2 percent inflation target in about two years when he began record easing in April 2013, now says the goal will be reached sometime around the year through March 2016, depending on oil prices.
Harada said at his inaugural news conference last month that he shared the same goals as Kuroda. The comments supported the view that the governor will retain a majority after facing the closest vote the BOJ had seen since 2008 when he pushed through a 5-4 decision in October to increase the pace of asset purchases.