Bank of Japan cuts inflation forecast, holds off on policy change
Yen rebounds while stocks fall as central bank refrains from expanding stimulus programme
Two years into so-called Abenomics - a mix of aggressive monetary and fiscal policy plus structural reform - the Bank of Japan is struggling to reach an ambitious inflation target and convince Japanese that years of deflation are in the past.
Instead, inflation is slowing, the economy is only slowly emerging from recession and confidence among the economy's bedrock manufacturers is slipping.
The Bank of Japan sharply cut its inflation forecast yesterday and its governor conceded it might take longer than expected to hit 2 per cent inflation, underlining the challenges of meeting the target as oil prices continue to slump.
The yen rebounded against the US dollar and Japanese equities fell after the central bank held off on expanding its stimulus drive, despite nearly halving its core consumer inflation forecast for the year beginning in April to 1 per cent.
Bank of Japan governor Haruhiko Kuroda defended the decision, saying that while the lower cost of fuel might weigh on inflation in the short term, it would stimulate the economy and thus accelerate price growth.
"Looking at wage negotiations and inflation expectations, fortunately there is no concern of Japan being beset by a deflationary mindset again," Kuroda said. "If Japan is making steady progress towards achieving 2 per cent inflation, there's no need to take additional steps."
