June 25, 2017

BOJ keeps policy steady, revises up view on economy

28 April 2017, 01:09 | Ignacio Smith

Central bank economic optimism unnerves euro zone bond investors

BOJ Used the Word “Expansion” First Time Since 2008 Signalling Confirmed Recovery

It also raised its estimate of growth for 2018, from 1.1 to 1.3 percent and published its first forecast for fiscal year 2019, of 0.7 percent. However, the bank lowered its core consumer price index growth outlook to 1.4% from 1.5% in the same period.

But the bank will not automatically raise its yield target just because this happens, the BOJ chief has stated.

The Bank of Japan (BoJ) held the benchmark interest rate steady at -0.1% and kept the yield target for 10-year Japanese government bonds around 0%.

In the quarterly review, the BOJ cut its core consumer inflation forecast for the year ending in March 2018, blaming weak services prices and cellphone bill discounts by carriers facing fierce price competition. "It's also hard to justify talking about an exit when inflation is nowhere near even 1 percent", she said.

Treasury bonds remained positive even as the outline raised the risk of bigger deficits and U.S. stocks slipped.

Even if inflation picks up more rapidly than anticipated, the Bank has pledged to allow inflation to overshoot the 2% target for a while, Thieliant pointed out.

All eyes are now on BoJ governor Haruhiko Kuroda's afternoon news briefing with markets hoping for some guidance on the bank's future policy plans.

Central bank economic optimism unnerves euro zone bond investors

"But price momentum, while sustained, lacks steam", he added, signalling anew that the BOJ will maintain its massive monetary stimulus for the time being.

This month, the International Monetary Fund (IMF) raised its growth forecast for Japan's economy this year and next, citing a pickup in exports, but it warned that a shrinking labour force and below-forecast inflation would curb longer-term expansion.

The Bank of Japan is pumping trillions of yen (tens of billions of dollars) into the economy each month through asset purchases meant to counter deflation and boost growth.

In a widely expected move, the BOJ maintained the 0.1 percent interest it charges on a portion of excess reserves that financial institutions park at the central bank.

Kuroda's comments come as the United States central bank raises interest rates while speculation swirls that the European Central Bank is considering backing off its own stimulus by turning off the taps on massive bond-buying or raising borrowing costs from historic lows.

After three years of heavy money printing failed to drive up inflation, the BOJ revamped its policy framework last September to one better suited for a long-term war against deflation.

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