Bank of Japan Holds Fire on Stimulus Despite Tepid Inflation
The Bank of Japan held off more easing measures after a policy meeting Thursday, despite flatlining inflation that is defying a two-year-old stimulus, but analysts expect further loosening as the economy struggles.
In a widely expected decision, the central bank stood pat on its record easy money program, which is adding about 80 trillion yen ($672 billion) to the money supply every year in a bid to jack up prices and kickstart growth.
One BoJ board member lost his call to shrink the stimulus programme by nearly half, with his eight colleagues voting to stay the course.
The yen got a boost, with the dollar slipping to 118.61 yen from 118.85 yen before decision, while the euro was at 131.81 yen against 132.02 yen. The pick-up in the value of the yen sent Tokyo's benchmark Nikkei stock index plunging 2.43 percent Thursday.
The announcement came hours after data showed Japan's factory output fell by a less-than-expected 0.3 percent in March -- tepid figures that highlight an anaemic recovery in the world's number three economy.
BoJ Governor Haruhiko Kuroda is due to talk to reporters later in the day while the bank is also expected to release updated inflation and economic growth forecasts in the afternoon.
Economists have said the BoJ will further loosen monetary policy, likely later this year, to bring Japan closer to its two-percent inflation target, which is a cornerstone of Prime Minister Shinzo Abe's drive to conquer stagnant or falling prices and revive the economy.
Kuroda has previously acknowledged that dragging Japan out of years of deflation was proving to be "very challenging", and he warned that inflation may temporarily fall to zero
"The Bank obviously considers the slowdown in inflation since the autumn to be a temporary phenomenon, blaming it mostly on the plunge in energy prices. In our view there is more to it than that," Marcel Thieliant at Capital Economics said in a commentary after the decision.
"The economic recovery is stalling, wages are barely rising, and inflation excluding food and energy is near zero, too. What’s more, it is far from clear that quantitative and qualitative easing has lifted inflation expectations among households and firms."
He added that another round of easing was on its way, a widely held view among economists.
In October, the bank shocked markets when it inflated its asset-buying stimulus plan by as much as 20 trillion yen annually, bringing it to the current 80 trillion yen level.
"We... remain convinced that more monetary easing will be needed before too long," Thieliant said, pointing to July or October as likely timelines.
Deflation may sound good for Japanese consumers, but it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
That, in turn, hurts producers and holds back their expansion and hiring plans, which is bad news for the economy.
Source: Agence France Presse
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