TOKYO: The Bank of Japan (BoJ) slashed its inflation outlook as plunging oil prices dent efforts to slay deflation, but policymakers boosted their growth forecasts and said the economy was rebounding.
The bank, which held off fresh easing measures after a two-day policy meeting, said inflation for the year starting in April would come in 1.0 percent, well down from an earlier 1.7-percent forecast.
But the economy would expand by 2.1 percent, up from 1.5 percent, it said.
The price downgrade underscores how reaching the BoJ’s 2.0 percent inflation target by early next year looks increasingly unlikely, and it may ramp up expectations for further stimulus to kickstart the world’s number three economy.
Markets are now awaiting a post-meeting press briefing by BoJ chief Haruhiko Kuroda, who has repeatedly pledged to do whatever is necessary to achieve the inflation target.
Observers will be keen to see what Kuroda says about the possibility of further measures, after surprising markets in October when the bank announced a huge expansion of its asset-buying programme.
Kuroda previously acknowledged that falling oil prices threatened the bank’s inflation bid, but he said cheaper energy should give the wider economy a shot in the arm and generate higher prices.
“Kuroda will be under pressure to increase stimulus,” Masamichi Adachi, an economist at JPMorgan Chase & Co., told Bloomberg News.
“It must be getting harder for him to communicate with market participants, with the economy expected to recover while inflation is slowing due to oil.”
Oil prices have lost more than half their value from above $100 in June last year.
The meeting comes a day before European Central Bank policymakers are widely expected to give the go-ahead to a huge bond-buying programme aimed at propping up the ailing eurozone economy.
Oil prices weigh on target
The BoJ’s inflation target is a cornerstone of Tokyo’s wider bid to turn around years of tepid growth by generating price rises and prompting firms to boost their hiring and expansion plans.
But a sales tax rise in April slammed the brakes on consumer spending, plunging the economy into recession during the third quarter and throwing Prime Minister Shinzo Abe’s growth project, dubbed Abenomics, into question.
The BoJ, however, on Wednesday kept up its view that the economy was on track for a recovery, and said its longer-term inflation view remains unaffected.
The inflation rate in the year starting April 2016 would come in at 2.2 percent, it said.
“With regard to the CPI (consumer price index), the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude oil prices,” the bank said in a statement.
The rest of the statement was largely a mirror of the one issued after the BoJ’s meeting in December, when the bank struck a more upbeat view of economy, saying exports were showing signs of picking up while factory output was bottoming out.
“Apart from a minor tweak to its lending programmes, the Bank of Japan left policy settings unchanged today and signalled no concern about the impact of lower oil prices,” Capital Economics said after the decision.