Bank of Japan trims inflation view, stands pat on policy

Japan's central bank on Thursday trimmed its annual inflation forecast in an acknowledgement of the struggles it faces in jacking up consumer prices. The BoJ has already been forced to push back its two-percent inflation target to March 2019. That is four years later than originally planned, as it strives to reverse a years-long deflationary spiral of falling prices and lacklustre growth.
"Today's downward forecast adjustment highlights that the Bank is still struggling to lift inflation," research house Capital Economics said in a commentary. "What's more, we believe that the Bank remains too optimistic about inflation." Policymakers on Thursday lowered their inflation forecast to 1.4 percent for the fiscal year to March 2018 from an earlier estimate of a rate of 1.5 percent.
"Risks to both economic activity and prices are skewed to the downside," the BoJ said in a statement. "On the price front, the momentum toward achieving the price stability target of two percent is maintained, but is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention," it added.
Still, the bank kept monetary policy unchanged as it issued a relatively upbeat view on the world's number three economy, slightly upgrading its annual GDP outlook, after a meeting. It said the economy was "likely to continue expanding and maintain growth" above expectations. The BoJ raised its economic growth forecast for the current fiscal year to 1.6 percent from 1.5 percent earlier.
The BoJ also left its massive 80 trillion yen ($719 billion) annual asset-purchase scheme unchanged and said it would press on with a plan to keep the yield on government 10-year bonds around zero. Both measures are central to the BoJ's efforts to hike consumer prices and stimulate the economy.
All eyes are now on BoJ governor Haruhiko Kuroda's afternoon news briefing with markets hoping for some guidance on the bank's future policy plans. This month, the International Monetary Fund (IMF) raised its growth forecast for Japan's economy this year and next, citing a pickup in exports. But the IMF warned that a shrinking labour force and below-forecast inflation would curb longer-term growth.
Prime Minister Shinzo Abe swept to power in late 2012 on a pledge to create a lasting recovery through a growth plan dubbed Abenomics. The scheme - a mix of aggressive monetary easing and huge government spending along with reforms to the economy - stoked a stock market rally as it weakened the yen and fattened corporate profits. But its effect on the wider economy has been less dramatic, with promised reforms slow in coming.