BOJ to paint bleak inflation outlook, keep policy steady

By Leika Kihara TOKYO (Reuters) - The Bank of Japan is expected to keep monetary policy steady on Thursday and predict that inflation will fall short of its 2 percent target for three more years, signalling that its massive stimulus will stay in place for the foreseeable future. Given their dwindling policy tool-kit, BOJ officials have made clear that subdued inflation alone won't trigger additional easing, and that the central bank will act only if risks threaten to derail Japan's economic recovery. But slowing global demand and simmering trade tensions have hurt Japan's exports and business sentiment, putting the test to the BOJ's projection the economy will keep expanding moderately

Reuters April 25, 2019 03:05:34 IST
BOJ to paint bleak inflation outlook, keep policy steady

BOJ to paint bleak inflation outlook keep policy steady

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to keep monetary policy steady on Thursday and predict that inflation will fall short of its 2 percent target for three more years, signalling that its massive stimulus will stay in place for the foreseeable future.

Given their dwindling policy tool-kit, BOJ officials have made clear that subdued inflation alone won't trigger additional easing, and that the central bank will act only if risks threaten to derail Japan's economic recovery.

But slowing global demand and simmering trade tensions have hurt Japan's exports and business sentiment, putting the test to the BOJ's projection the economy will keep expanding moderately.

With uncertainty over a scheduled sales tax hike in October also clouding the outlook, some analysts expect the BOJ to change its forward guidance in coming months to give markets more clarity on how long interest rates will remain very low.

"If the BOJ were to downgrade its inflation forecast, changing the forward guidance could be among options," said Izuru Kato, chief economist at Totan Research.

"But the BOJ likely won't do it this time," because markets already expect any rate hike to be some time away, he added.

At a two-day meeting ending on Thursday, the BOJ is expected to maintain its short-term rate target at minus 0.1 percent and a pledge to guide long-term yields around zero percent. It is also expected to reiterate it will keep buying assets such as government bonds and exchange-traded equity funds.

In quarterly projections also due on Thursday, the BOJ may slightly cut its growth and price forecasts for the current fiscal year ending in March 2020, sources have told Reuters. It will also project inflation to move above 1.5 percent but fall short of 2 percent in fiscal 2021, they said.

Such projections will underscore a dominant market view that heightening risks and soft inflation will keep major central banks from whittling down crisis-mode policies any time soon.

Under forward guidance adopted last year, the BOJ pledged to keep rates very low for an "extended period" given uncertainties such as the impact of this year's sales tax hike on the economy.

Some analysts say the BOJ could tweak the language to reassure markets that rates will stay ultra-low long after the tax increase takes place.

"The BOJ could extend its forward guidance and commit to maintaining current monetary easing at least through 2020," said Hiroshi Ugai, chief Japan economist at JPMorgan Securities.

Ugai said the BOJ could make the tweak on Thursday, though most analysts expect any such change to happen later this year.

Despite some government steps to soften the tax blow, analysts polled by Reuters expect it will briefly knock the economy into contraction in the fourth quarter.

Years of heavy money printing have failed to fire up inflation to the BOJ's 2 percent target and left it with little ammunition to fight the next recession.

Prolonged easing has also added to stresses on regional banks, already facing slumping profits due to an ageing population and an exodus of borrowers to big cities.

Under current projections, the BOJ expects core consumer inflation to hit 1.1 percent in the year ending in March 2020 and accelerate to 1.5 percent next year. That is much higher than projections in a Reuters poll of 0.7 percent inflation this fiscal year and 0.8 percent the following year.

(Reporting by Leika Kihara; Editing by Kim Coghill)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.