BOJ rift emerges over timeframe for inflation target

PUBLISHED : Friday, 01 November, 2013, 3:23am
UPDATED : Friday, 01 November, 2013, 5:22pm

Bank of Japan governor Haruhiko Kuroda is facing the biggest rift since embarking on his stimulus campaign in April, with three board members dissenting against its outlook for achieving a 2 per cent inflation target.

In a twice-yearly outlook report released yesterday, the BOJ revised up its economic growth forecast for next financial year by 0.2 percentage point to 1.5 per cent and projected that Japan would make steady progress towards meeting the bank's 2 per cent inflation goal in two years.

But two of the nine board members - Takahide Kiuchi and Takehiro Sato - repeated their dissent, made in April, against the two-year timeframe, echoing widely held market views that Japan would need much longer to see inflation rise 2 per cent.

Another board member, former International Monetary Fund economist Sayuri Shirai, joined the dissenters in calling for more emphasis on downside risks to the economic outlook.

While the disagreement may not immediately lead to a change in the BOJ's policy framework, pessimists may be keener to expand monetary stimulus if the economy faces trouble, some analysts say.

"I do not think disagreement will spread because growth and inflation will likely hold up for the next six months," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

"But it will become clear from the second half of next year that consumer prices are undershooting expectations. Shirai could be one of the first to call for more easing."

Kuroda put on a brave face, saying that despite some challenges from slowing growth in emerging Asian markets, Japan's economy would continue recovering and make steady progress towards achieving 2 per cent inflation in two years.

Earlier in the day, in a widely expected move, the BOJ maintained its intense monetary stimulus launched in April, under which it aims to double base money through asset purchases to help reflate the economy.

The economy expanded for a third quarter between April and June as Prime Minister Shinzo Abe's stimulus policies boosted business sentiment and household spending. But a slump in exports has cast doubt on the BOJ's view that global growth will pick up in time to offset an expected downturn in household spending when Japan raises its sales tax to 8 per cent from 5 per cent in April.