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BOJ keeps stimulus unchanged, maintains inflation forecasts

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The Bank of Japan (BOJ) maintained its massive monetary stimulus programme and kept its price and economic forecasts unchanged. In a small sign of progress, it said inflation expectations had stopped falling.

[TOKYO] The Bank of Japan (BOJ) maintained its massive monetary stimulus programme and kept its price and economic forecasts unchanged. In a small sign of progress, it said inflation expectations had stopped falling.

The BOJ will keep its policy interest rates and asset purchases at current levels in its quest to hit 2 per cent inflation, it said in a statement on Tuesday. Inflation expectations remain more or less unchanged, versus a previous assessment that they were weakening, it said.

The yen strengthened as the market reacted to the BOJ's view of price expectations. It traded at 110.76 against the US dollar as at 12.58pm in Tokyo, versus around 110.90 prior to the BOJ's release of its policy statement.

The central bank forecast the economy to grow 1.4 per cent in the fiscal year starting in April, with inflation of 1.4 per cent over the same period.

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With the economy growing and inflation slowly but steadily rising, some investors have started to bet that the BOJ is nearing the point where it begins to normalise its ultra-loose monetary policy. The yen gained strength after the BOJ cut its bond purchases earlier this month.

Governor Haruhiko Kuroda is expected to try to tamp down this speculation when he speaks in a news conference scheduled for 3.30pm. 

"The decision makes it clear that the BOJ doesn't want any noise about early tightening now," said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BOJ official.

"The BOJ could have raised its growth forecast, given recent economic data, but it didn't because it's fearful of fuelling speculation of policy normalisation."

He added that "what they fear most is a strong yen".

Some economists do see tightening on the horizon. Nearly half of those surveyed by Bloomberg said they expected the first move to come later this year. And even a minority of BOJ policymakers are raising the need for future discussions on normalizing policy, though they agree that the stimulus programme must continue unchanged for some time, according to people familiar with central bank's discussions.

The BOJ is lagging behind its global peers in normalising policy after years of unprecedented stimulus. The Federal Reserve is expected to continue raising rates this year, and some European Central Bank officials are calling for the end of asset purchases ahead of a policy meeting later this week. The Bank of Canada raised its overnight rate target last week.

BLOOMBERG

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