By CentralBankNews.info
The Bank of Japan (BOJ) maintained its target for boosting the country’s monetary base by an annual 80 trillion but lowered its forecast for economic growth and inflation due to a flattening of exports from slower growth in emerging market economies and sluggish private consumption.
But Japan’s central bank, which had been expected by many economists to expand its quantitative easing, maintained a relatively optimistic outlook for domestic demand as the corporate sector is continuing to invest on the back of historically high profits and private consumption remains resilient due to a steady improvement in employment and income.
“Looking ahed, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors, and exports are expected to start increasing moderately on the back of emerging economies moving out of their declaration phase,” the BOJ said.
In its semi-annual economic outlook, the BOJ cut its forecast for economic growth in the current fiscal 2015 year, which began on April 1, to an average of 1.2 percent from 1.7 percent that was forecast in April.
In fiscal 2016 Japan’s economy is expected to continue growing above its potential, expanding by 1.4 percent, slightly down from the previous forecast of 1.5 percent.
But for fiscal 2017, growth is expected to be hit by the impact of a planned hike in sales tax on April 1, 2017 to 10 percent from 8 percent and a cyclical deceleration. The growth forecast for fiscal 2017 was trimmed to 0.3 percent from a previous 0.2 percent.
In April 2014 Japan’s government took the first step in raising sales taxes to 8 percent from 5 percent to curb mounting debt, and the economy quickly nosedived, with the economy shrinking for four consecutive quarters on an annual basis. In the second quarter of this year the economy finally started to expand again as Gross Domestic Product rose by an annual 0.8 percent.
Although the BOJ lowered its forecast for inflation, it maintained that the underlying trend in inflation is steadily rising and as the impact of the fall in oil prices dissipates, inflation will accelerate toward its target of 2.0 percent.
But the BOJ once again pushed back its expectation for when inflation will reach 2.0 percent, saying this would be around the second half of fiscal 2016, assuming that crude oil prices rise moderately from the current level.
In its April policy report the BOJ pushed back its estimate for reaching its inflation target to the first half of fiscal 2016 from this year.
The BOJ now forecast inflation of only 0.1 percent this fiscal year, down from its previous forecast of 0.7 percent, and inflation of 1.4 percent for fiscal 2016, down from its April forecast of 1.9 percent.
For fiscal 207 inflation is expected to jump by 1.3 percentage points due to the sales tax hike, with consumer price inflation seen at 3.1 percent, unchanged from April’s outlook. Excluding the higher sales tax, inflation was seen at an unchanged 1.8 percent.
Headline inflation in Japan was flat in September, down from 0.2 percent in July and August.
The BOJ launched its massive Quantitative and Qualitative Easing (QQE) campaign in April 2013 in an effort to rid the country of 15 years of deflation. As interest rates were already at zero, the BOJ began purchasing assets, mainly Japanese government bonds but also exchange-traded funds and real statement investment trusts.
While the fall in crude oil prices last year has dealt the BOJ a setback in its attempt to boost inflation, it said medium-to long-term inflation expectations appear to be rising and in response the wage and price-setting stance of firms “has clearly changed,” with the increase in wages largely than last year at many firms, indicating a steady increase in inflation accompanied by higher wages.
The Bank of Japan issued the following statement on monetary policy: