Bloomberg, Jul 15, 2015
The Bank of Japan refrained from increasing its monetary stimulus even as it trimmed its inflation outlook, as officials count on the economy pulling out a soft patch and consumer price gains accelerating toward its target.
The central bank will continue to expand the monetary base at an annual pace of 80 trillion yen ($648 billion), it said in a statement on Wednesday in Tokyo. It cut its inflation outlook for the fiscal year through March 2016 to 0.7 percent from 0.8 percent and forecast 1.9 percent for the next fiscal year.
While the BOJ’s 2 percent goal remains distant, officials are looking beyond disappointing output and export data and see a tight labor market and wage gains as signs of improvement, people familiar with the discussions said earlier this month. A majority of economists surveyed by Bloomberg doubt that inflation will pick up as the BOJ forecasts and predict another boost in stimulus.
“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.”
The yen was trading at 123.43 per dollar at 12:52 p.m. on Wednesday in Tokyo.
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.
Inflation is likely to be broadly in line with the central bank’s April outlook, the BOJ said in its statement. The bank added the phrase “with some fluctuations” to its assessment of exports and industrial production, which it said are picking up.
The BOJ’s preferred gauge of inflation was at 0.1 percent in May, down from 1.5 percent in April last year, as a decline in oil depressed consumer prices. The BOJ forecast the gauge will pick up to 1.8 percent in the fiscal year starting in April 2017, excluding the effects of a planned sales-tax hike.
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.
“With weaker underlying momentum in real wages and consumption, the pickup in growth in 2015 is now projected to be more modest,” the IMF said.
Japan’s economy is also exposed to risks from aboard, said Itochu Corp. economist Atsushi Takeda, citing recent turbulence in stocks in China, Japan’s largest trading partner.
Yukitoshi Funo, a former executive at Toyota Motor Corp. who joined the policy board this month, voted in line with the majority. Funo succeeded Yoshihisa Morimoto, who dissented in last October’s split 5-4 vote to expand the asset-purchase program.