The Bank of Japan’s unprecedented monetary stimulus can drive inflation to its 2 percent target, Governor Haruhiko Kuroda said as the bank left its policy unchanged and trimmed its price outlook.
A slowdown in Japan’s economy is unlikely to continue this quarter while inflation could pick up “quite fast” from the autumn, Kuroda said after the bank kept a pledge to expand the monetary base at an 80 trillion yen ($648 billion) annual pace.
The governor stuck to his view that inflation will reach its target by September next year and, while he ruled out any immediate expansion in easing, reiterated readiness to act if necessary. A majority of economists doubt prices will pick up as the central bank envisions, with a third of those in a Bloomberg survey this month seeing further action in October.
“I don’t think a bit of weakness from April to June will continue from July at all,” Kuroda said at a press conference. “Monetary policy is responsible for lifting inflation to the 2 percent target, and I think that can be done while taking into account various factors.”
The BOJ trimmed its inflation outlook for the fiscal year through March 2016 to 0.7 percent from 0.8 percent, the fourth straight quarter it’s cut the forecast. It now sees 1.9 percent for the next fiscal year, less than 2 percent it predicted in April. The inflation gauge was at 0.1 percent in May, against a 2 percent goal.
The yen was trading at 123.53 per dollar at 5:13 p.m. on Wednesday in Tokyo, losing about 12 percent since the central bank expanded its asset-purchase plan last October.
“The BOJ will shrug off the downward revisions in prices and growth by emphasizing improvement in wages and labor market,” said Daiju Aoki, an economist at UBS Group AG.
“But it’s just so noticeable from their forecasts that things aren’t going as the BOJ hopes. These revisions are a sign the economic situation is getting tougher.”
Weakness in Japan’s exports and production and continued sluggishness in consumer spending after last year’s sales-tax hike are increasing the challenges in reflating the world’s third-biggest economy. Developments overseas affected Japan’s exports, Kuroda said.
Still, the underlying trend in prices remains intact, a virtuous cycle in the economy is continuing and inflation expectations have been maintained even as cheaper oil weighed on consumer prices, Kuroda said. The bank retains its view that inflation is likely to reach its goal around the six months through September 2016, and stands ready to adjust policy if the price trend changes, he said.
When asked if he considers himself to be a reflationist, Kuroda appeared to dodge the question.
“I don’t think there is a clear definition of a reflationist in Japan, and I myself have never declared that I am one, so that’s hard to answer,” Kuroda said.
The BOJ lowered its growth outlook for this fiscal year to 1.7 percent from 2 percent and forecast the expansion will slow to 1.5 percent next year and 0.2 percent the year after.
Twelve of 35 economists in a Bloomberg survey this month forecast the BOJ will boost stimulus on Oct. 30, a year after Kuroda announced a surprise increase in the pace of the bank’s asset purchases. Nineteen said the downside risks to the BOJ’s outlook had risen compared with three months earlier when the bank released its previous outlook for inflation.
Barclays Plc. estimates the economy shrank in the three months through June after rebounding for two quarters from a recession last year. The International Monetary Fund cut its 2015 growth forecast for Japan to 0.8 percent from 1 percent in a report last week.
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