BOJ cuts inflation view, keeps stimulus as risks to economy heighten
* Policy decision expected 0300-0500 GMT
* BOJ keeps interest rate target unchanged
* BOJ cuts price forecasts, keeps to modest growth view
* BOJ sounds cautious about global econ outlook
* Governor Kuroda to brief media 0630 GMT
(Recasts first paragraph, adds analyst's quote)
By Tetsushi Kajimoto and Daniel Leussink
TOKYO, Jan 23 (Reuters) - The Bank of Japan cut its
inflation forecasts on Wednesday and warned of rising risks to
the economy from faltering global demand, further pushing back
policymakers' years-long efforts to foster durable growth.
As widely expected, the BOJ retained its ultra-easy monetary
settings at its policy review, leaving Japan some way off from
exiting a sweeping stimulus programme begun in 2013.
The central bank also maintained its view that Japan's
economy, the world's third largest, will continue to expand at a
modest pace. Yet the rising pressure on global growth from a
trade war between the United States and China - Japan's biggest
trading partners - has many analysts wary about the outlook.
"Japan's economy is likely to continue on an expanding trend
through fiscal 2020," the central bank said in its quarterly
"Overseas economies are expected to continue growing firmly
on the whole, although various developments of late warrant
attention such as the trade friction between the United States
The BOJ warned the domestic economy faces risks on several
fronts, including protectionism, Brexit and U.S. economic
"Such downside risks concerning overseas economies are
likely to be heightening recently, and it also is necessary to
pay close attention to their impact on firms' and households'
sentiment in Japan," it said.
A Reuters poll of economists showed those external factors
have increased the chances of Japan sliding into a recession
this coming fiscal year starting in April, making it ever so
harder for the BOJ to reach its 2 percent inflation target.
Moreover, the International Monetary Fund (IMF) trimmed its
global growth forecasts and a survey showed increasing pessimism
among business chiefs amid the trade tensions.
At its policy-setting meeting, the BOJ kept its short-term
interest rate target at minus 0.1 percent and a pledge to guide
10-year government bond yields around zero percent.
With stubbornly weak inflation forcing it to retain its
massive stimulus longer than expected, the BOJ took steps in
July to make some changes to its policy framework, such as
allowing bond yields to move more flexibly around its target.
"It will be difficult for the BOJ to discuss policy
normalization or an exit strategy for the moment as risks from
global economies are rising," said Hiroaki Mutou, chief
economist at Tokai Tokyo Research Institute.
"The central bank will likely save easing measures for later
and it will examine how the Fed policy movement will be and how
it will likely impact the yen," he said.
The global slowdown has prompted the Federal Reserve to take
a more cautious stance on its tightening cycle in recent months,
with traders speculating it might press the pause button soon
having raised rates four times last year.
LOWER INFLATION FORECAST
In its outlook report issued on Wednesday, the BOJ's
nine-member board analysed Japan's economy including fresh
growth and inflation projections through the fiscal year ending
in March 2021.
The central bank cut its economic growth projections in the
current fiscal year to March, but it raised its growth forecasts
slightly in the fiscal years 2019 and 2020, with government
spending seen to offset the pain of the planned tax hike in
In a further sign of the tough road ahead, government data
out on Wednesday showed Japan's exports in December fell the
most in two years.
The BOJ cut its forecast for core consumer inflation to 0.9
percent in the fiscal year beginning in April from 1.4 percent,
reflecting slumping oil prices and the potential fallout from
slowing global growth. It was the fourth downward revision by
the central bank to its inflation forecast for fiscal 2019 since
it was first estimated in April 2017.
That was still above a 0.7 percent forecast by analysts
polled by Reuters.
The central bank also trimmed core consumer inflation in
fiscal 2020 to 1.4 percent, from 1.5 percent forecast in
Many economists in the poll say the BOJ's next move is to
start normalizing policy, with its steps likely including
expanding its 10-year bond yield fluctuation from 0.2 percent
and raising the 10-year yield target from around zero percent.
A majority expect that would happen in 2020 or later.
As part of efforts to prevent financial institutions from
sitting on their huge pile of cash, the central bank decided to
extend the deadline by one year for lending schemes aimed at
encouraging financial institutions to boost loans and support
growth foundations .
The BOJ's radical stimulus programme has had some unintended
consequences, as years of low rates hurt financial institutions'
Many BOJ policymakers are wary of ramping up stimulus,
though external shocks or a sudden spike in the yen could force
the central bank to do just that if the economy is at risk of
sliding into recession.
(Reporting by Tetsushi Kajimoto and Daniel Leussink; Additional
reporting by Kaori Kaneko and Kiyoshi Takenaka
Editing by Shri Navaratnam)
First Published: 2019-01-23 05:09:20
Updated 2019-01-23 07:02:42
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