The Bank of Japan declined to step up its monetary stimulus Friday even as it postponed its time-frame for reaching a 2% inflation target for the second time this year.
BOJ Governor Haruhiko Kuroda and his fellow board members said in a report detailing updated economic projections that the slide in oil prices is to blame for reduced consumer-price forecasts for the coming two years.
The bank now sees the inflation target reached around the six-month period through March 2017. At the start of this year, the expectation was for the goal to be realized in the fiscal year through March 2016, Bloomberg reported.
Kuroda reiterated at a press conference that the central bank won’t hesitate to adjust policy if necessary, and that it will continue easing until stable 2% inflation is achieved. The timing of reaching the target depends on oil, he said.
The policy decision Friday was seen as a close call by economists, given evidence of waning inflation expectations, lackluster domestic spending and exports that have been hurt by China’s deceleration.
Japan’s challenge with consumer prices is much the same as in other developed nations, where policymakers have seen their targets undercut by cheaper energy costs and weakness in global demand thanks to slowdowns across emerging markets.
The BOJ board now sees prices rising 0.1% this fiscal year, down from 0.7%, and 1.4% next year. The bank also said that risks to that outlook for the economy and prices are skewed to the downside.
The BOJ board earlier voted 8-1 to continue expanding the monetary base at an annual pace of 80 trillion yen ($664 billion). Government officials and the finance minister had talked down the need for more stimulus in the run-up to the Friday meeting.
Some officials had seen no need for added stimulus, amid concern it could drive down the yen and hurt consumers–especially the poor and elderly–people with knowledge of the matter said earlier this week.
Most private economists for months have said the BOJ’s inflation targets were unrealistic. Data earlier Friday showed the BOJ’s main price gauge, which strips out fresh food costs, dropped for a second straight month. After removing both food and energy, prices climbed 0.9% in September.
“I don’t think this is the end - expectations for easing will be carried over to coming months,” said Daiju Aoki, an economist at UBS Securities Japan Co., who forecast the BOJ would add stimulus today. “The BOJ risked putting itself behind the curve by not acting today. Kuroda had been preemptive to address emerging risks but now they are becoming reactive.”
