Bank of Japan delays inflation timeline again

Yahoo – Nov 1, 2016 – Japan’s central bank on Tuesday pushed back its timeline for reaching a high-profile inflation target, in the latest acknowledgement that Tokyo’s war on deflation is falling way below expectations.

After a policy meeting, the Bank of Japan said it now expected prices to move “toward” 2.0 percent by March 2019, the latest in a series of delays.

The new timeline is four years beyond an original April 2015 target pledged by BoJ governor Haruhiko Kuroda, whose term ends in April 2018.

Policymakers trimmed their consumer price forecast for the current fiscal year to March 2017 and the subsequent two years.

“Risks to both economic activity and prices are skewed to the downside,” the bank said in a post-meeting statement.

“On the price front, the momentum toward achieving the price stability target of 2.0 percent seems to be maintained, but is somewhat weaker than the previous outlook, and thus developments in prices warrant careful attention going forward.”

The bank did not alter monetary policy Tuesday, including its massive asset-purchase programme worth around 80 trillion yen ($763 billion) annually.

It also left unchanged a negative interest rate policy designed to spur lending and growth in the world’s number three economy.

“However, policymakers are showing concern about the sharp moderation in price pressures, and we still expect further stimulus in coming months,” Marcel Thieliant from research house Capital Economics said in a commentary after the BoJ decision.

The bank’s inflation goal is a cornerstone of Prime Minister Shinzo Abe’s growth blitz, dubbed Abenomics, which was unveiled to much fanfare in early 2013.

The programme sharply weakened the yen — fattening corporate profits — and set off a stock market rally that spurred hopes for the laggard economy.

But more than three years on, Japan is still posting wobbly growth and inflation is nowhere near the BoJ’s target.

– Weak spending –

Underscoring the weakness, government data last week showed consumer prices fell in September for the seventh straight month.

On Monday, separate figures showed Japan’s factory output and retail sales were flat in September.

The disappointing figures suggest a tepid expansion in July-September growth, due this month.

Japan’s economy contracted in the last three months of 2015, before bouncing back in January-March with a 0.5 percent rise on-quarter and then a 0.2 percent expansion in April-June.

After its September meeting, Japan’s central bank revealed another weapon in its monetary policy arsenal, saying it would switch its focus 10-year government bonds and pledged to keep its yield around zero, by buying as few or as many as necessary.

The bank said it would also cut back on the number of longer dated bonds it holds in a bid to reduce the price of long-term securities.

That is aimed at increasing their yield, marking the latest effort to convince Japanese consumers that the price of goods and services will rise in the future.

Some analysts, however, said the move was an admission of defeat and a warning of the limits of central bank power.

On the government side, Tokyo in July announced a whopping 28-trillion-yen package aimed at kick-starting growth, after Britain’s June vote to quit the European Union sent financial markets into a tailspin and sparked a yen rally.

But Abe’s promises to cut through red tape have been slower, and his plans to buoy Japan’s once-booming economy have looked increasingly unrealistic.

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