Bank of Japan pushes back inflation target for sixth time

TOKYO: The Bank of Japan kept monetary policy steady on Thursday but once again pushed back the timing for achieving its ambitious inflation target, reinforcing views that it will lag well behind other major central banks in scaling back its massive stimulus programme.

With robust exports and private consumption pointing to a steady though modest recovery, the Japanese central bank slightly raised its growth forecasts and offered a more upbeat view of the world´s third-largest economy than last month.

But stubbornly weak price growth forced the BOJ to cut its inflation forecasts, underscoring the challenges the central bank faces as it tries to reflate the economy and coax consumers to spend more. "Recent price developments have been relatively weak, as companies remained cautious in raising wages and prices," the BOJ said in a quarterly report on its long-term growth and inflation projections.

"Risks to the economy and price outlook are skewed to the downside," it said, conceding it has proved harder than expected to change public perceptions that deflation will persist. The BOJ pushed back by a year the timing for hitting its ambitious 2 inflation target, in a fresh blow to Governor Haruhiko Kuroda´s radical monetary experiment aimed at sustainably ending deflation.

It now expects inflation will not reach that level until sometime in the fiscal year ending in March 2020.The Bank of Japan has now pushed back the price target timeframe six times since Kuroda launched his huge asset-buying programme in 2013.

"The Bank of Japan´s hands are tied. Central banks in the United States and Europe are headed toward higher rates and balance sheet reduction, but the Bank of Japan is headed in the opposite direction," said Hiroaki Muto, economist at Tokai Tokyo Research Center.

"The message seems to be the Bank of Japan is prepared to maintain easy policy indefinitely." As widely expected, the Bank of Japan maintained its short-term interest rate target of minus 0.1 percent and its 10-year government bond yield target of around zero percent.

The central bank also kept intact guidance that it would keep buying government bonds so its holdings increase at an annual pace of 80 trillion yen ($714 billion). While companies were facing rising labour costs from a tight job market, many of them were making ends meet by hiring more temporary workers and streamlining operations, the Bank of Japan said.

Such efforts are weighing on wages and prices, creating a disconnect between stronger economic activity and low inflation, it said. At his post-meeting news conference (0630 GMT), Kuroda is likely to remind markets of the BOJ´s resolve to maintain ultra-easy policy until inflation is sustainably above target.

That would put the Bank of Japan far behind the U.S. Federal Reserve, which has been gently raising rates and is expected to announce detailed plans in September to start shrinking its more than $4 trillion balance sheet.

The European Central Bank (ECB) is also expected to announce plans in coming months to taper its asset purchases as growth picks up on the continent, according to a Reuters poll. Both the Fed and the ECB are also facing stubbornly low inflation that is puzzling policymakers, though levels are not as tepid as Japan´s.   "Japan´s economy is expanding moderately," the Bank of Japan said, a brighter assessment than last month when it said it was turning toward a moderate expansion. But it slashed its consumer inflation forecasts for the year ending in March 2018 and the following year, to 1.1 percent from 1.4 percent, and to 1.5 percent from 1.7 percent.

Japan´s economy grew at an annualised 1.0 percent in the first quarter thanks to robust global demand and a pick-up in private consumption. Data earlier on Thursday showed its exports rose for a seventh straight month in June. But core consumer prices in May rose just 0.4 percent from a year earlier, well below the Bank of Japan´s 2 percent target.