The Bank of Japan refrained from boosting monetary stimulus even as it pushed back its forecast for reaching a 2 percent inflation target, ascribing the delay to the tumble in oil prices.
The central bank kept a plan to expand the monetary base at an 80 trillion yen ($673 billion) annual pace, as forecast by most economists. The BOJ cut its growth and price estimates for the fiscal year through March, now envisioning hitting the inflation goal around the April-to-September period of 2016.
Governor Haruhiko Kuroda said there’s no change to the central bank’s commitment to reaching its objective as soon as possible, rebutting concern expressed in the past week by one of Prime Minister Shinzo Abe’s advisers. He reiterated his pledge to alter policy if the economy’s trend changes.
Holding off from a third volley of what’s been an unprecedented scale of monetary expansion offers Kuroda time to gauge whether weakness in the U.S. and China last quarter will reverse following American job gains and Chinese stimulus. Most analysts anticipate he and his colleagues will need to pull the trigger again by the end of October.
“The key point is whether an increase in wages will boost private consumption” and drive up prices, said Daiju Aoki at UBS Group AG. “We’ll probably see a clear gap between the BOJ’s bullish view and actual prices around July,” he said, predicting added stimulus that month.
The BOJ’s preferred, core, inflation measure, which strips out fresh food and effects of last year’s sales-tax increase, is forecast by economists to stay at 0 percent in March for a second straight month. The government will release the data on Friday.
The yen strengthened after the decision, before losing much of the advance later in the day as Kuroda reiterated he won’t hesitate to act if the 2 percent target proves hard to reach. Japan’s currency was up 0.2 percent at 118.83 per dollar as of 5:33 p.m. in Tokyo after rising as much as 0.4 percent earlier. The Topix index of shares fell 2.1 percent.
Kuroda said it’s true there’s been a delay in reaching the target. Just last week, Kuroda said that inflation would reach the goal around this fiscal year, which runs through March, or early in the following year. When he introduced the record stimulus in April 2013, he forecast the BOJ would hit the goal in about two years.
“The price trend is steadily improving and is expected to keep doing so,” Kuroda said at a press briefing after the decision. “The mechanism for a gradual increase in consumer prices is working, with wage growth on the back of the tightening labor market and solid corporate profits.”
The BOJ today cut its estimate for core inflation to 0.8 percent for the year through March, from a January estimate of 1 percent. It predicted 2 percent price gains for next fiscal year, less than its previous forecast of 2.2 percent, and 1.9 percent for the following year.
The inflation outlook in Japan depends on oil prices and entails considerable uncertainty, the BOJ said. The estimates are based on median projections of the BOJ’s nine-member policy board.
“I don’t think we need additional stimulus at this stage,” Kuroda said. “Our thinking remains the same: we won’t hesitate to adjust policy if there is a change in the trend of prices.”
Consumer prices across the globe have been pulled down by the tumble in oil prices in the past year, challenging central bankers with inflation-rate targets. Kuroda has repeatedly said that in time the drop in energy costs will spur spending, ultimately pumping up inflation.
“The BOJ is at risk of falling behind the curve,” said Yuji Shimanaka at Mitsubishi UFJ Morgan Stanley Securities Co., one of the two economists in a Bloomberg News survey who forecast the BOJ would add stimulus today. “Inflation is clearly slowing, becoming more distant from the BOJ’s target, and the economy isn’t doing well. Pressure for more action will only increase in the coming months.”
Politicians have been divided on whether the BOJ needed to take further actions. Kozo Yamamoto, one of the staunchest advocates of Prime Minister Shinzo Abe’s reflationary program, said last week he worried the BOJ’s attitude was wavering.
Yamamoto, who has proposed tightening oversight of the BOJ through a law codifying its responsibility for achieving inflation, said he’d decide on his legislative strategy after today’s decision. Koichi Hamada, another Abe adviser, issued his own, conditional, call for more action this month.
By contrast, the head of Japan’s top opposition party, Katsuya Okada, last week said nothing further was needed, flagging the danger of a “bubble.” A leader of one of the nation’s top business lobbies also doubted the central bank’s “unnatural actions” would help.