Japan’s central bank has sharply cut its inflation forecast – to 1.0 percent for the fiscal year starting in April, from 1.7 percent previously – and admitted it could take longer than expected to hit its target of getting inflation up to 2.0 percent.
At the same time the Bank of Japan said it was not going to pump additional stimulus money into the economy through so-called quantitative easing. That word caused the yen to rise in value against the dollar.
The bank and the Tokyo government are trying to get the Japanese spending again to end 15 years of deflation – that is falling prices – which has caused people to delay major purchases and stunted economic growth. But their efforts are being undermined by slumping oil prices.
The fact that the Bank of Japan did not expand its stimulus programme was no surprise to financial markets, but share prices slipped on Wednesday as investors took profits from rises in previous sessions.
Bank of Japan Governor Haruhiko Kuroda defended the decision, saying that while the lower cost of fuel may bring down inflation short-term, it will 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 told a news conference.
“If Japan is making steady progress toward achieving 2.0 percent inflation, there’s no need to take additional steps.”
Rather than increasing its purchases of government bonds and other securities, the central bank extended by a year the deadline of several loan schemes aimed at encouraging banks to boost lending, and expanded the size of one of them.