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Bank of Japan holds fire on stimulus despite tepid inflation

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The Bank of Japan held off more easing measures after a policy meeting Thursday, despite flatlining inflation that is defying massive stimulus launched two years ago.

[TOKYO] The Bank of Japan held off more easing measures after a policy meeting Thursday, despite flatlining inflation that is defying massive stimulus launched two years ago.

In a widely expected decision, the central bank stood pat on its record easy money programme, which is adding about 80 trillion yen (S$889.4 billion) to the money supply every year in a bid to jack up prices and kickstart the economy.

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 announcement came hours after fresh data showed Japan's factory output fell by a less-than-expected 0.3 per cent in March - still-weak figures that highlight an anaemic recovery in the world's number three economy.

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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 have to further loosen monetary policy, likely later this year, to bring Japan closer to its two-percent inflation target.

The BoJ's inflation target is a cornerstone of Prime Minister Shinzo Abe's drive to conquer stagnant or falling prices and revive the long-sluggish economy.

Mr 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.

While deflation may sound good for Japanese consumers, 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.

AFP

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