BOJ cuts inflation forecast, governor signals no rush to ease

Wed Jan 21, 2015 4:48am EST
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By Leika Kihara

TOKYO (Reuters) - Two years into so-called Abenomics – a mix of aggressive monetary and fiscal policy plus structural reform – the Bank of Japan is struggling to reach an ambitious inflation target and convince Japanese that years of deflation are in the past.

Instead, inflation is slowing, the economy is only slowing emerging from recession and confidence among the economy's bedrock manufacturers is slipping.

On Wednesday, the Bank of Japan (BOJ) sharply cut its inflation forecast and the governor conceded it may take longer than expected to hit 2 percent inflation, underlining the challenges of meeting the target as oil prices continue to slump.

The yen rebounded against the dollar and Japanese equities fell after the central bank held off on expanding its stimulus drive, despite nearly halving its core consumer inflation forecast for the year beginning in April to 1.0 percent.

Governor Haruhiko Kuroda defended the decision, saying that while the lower cost of fuel may weigh on inflation short-term, it will stimulate the economy and thus accelerate price growth.

"Looking at wage negotiations and inflation expectations, fortunately there is no concern of Japan being beset by a deflationary mindset again," Kuroda told a news conference.

"If Japan is making steady progress toward achieving 2 percent inflation, there's no need to take additional steps."

As widely expected, the BOJ maintained its pledge to increase base money at an annual pace of 80 trillion yen ($678 billion) by buying government bonds and other securities.   Continued...

A man using his mobile phone walks past the Bank of Japan headquarters building in Tokyo December 19, 2014. REUTERS/Yuya Shino