BOJ Will Postpone Inflation Target Time

Faced with still-sluggish inflation even as the economy picks up steam, the Bank of Japan will delay again its projected timing for achieving the 2% inflation target, according to a majority of economists polled by Reuters.

Inflation will accelerate gradually toward 1% later this year, say analysts, but it will still fall short of that both in this fiscal year and next, the poll predicted. In May, core consumer prices rose just 0.4% on a year ago, Reuters reported.

“Wages and prices are rising but not as quickly as the BoJ forecasts. The bank will have to postpone the timing to achieve its price target at some point,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

“The BoJ isn’t likely to change its 2% price target itself but there is a chance that the central bank will make it as a medium- to long-term target.”

As the economy strengthens, the BoJ this week is set to raise its growth forecast but cut its inflation outlook, sources told Reuters.

Twenty-seven of 33 analysts say the BoJ will push back its estimate of when it will meet its 2% inflation target, currently pegged to fiscal 2018. But a majority of analysts surveyed July 6-17 say the BoJ won’t change the target.

“The Federal Reserve and the European Central Bank set the price target at 2%, so if the BoJ does not keep the same level, the yen could strengthen and damage its stability,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.

“So I don’t expect the BoJ will change the 2% price target itself under the current policy framework.”

The median forecast from the poll forecast the core consumer price index, which includes oil products but not fresh foods, will rise just 0.7% this fiscal year to March 2018 and 0.8% the following year.

The world’s third-largest economy will grow 1.4% in the current fiscal year but then lose some momentum, expanding 1.1% in the following year, the poll predicted.

Under Governor Haruhiko Kuroda, the BoJ in 2013 adopted an aggressive stimulus program with the aim to lift inflation to 2% in about two years and pull Japan out of prolonged deflation. The BoJ has had to repeatedly delay the timing of reaching this goal despite the bank’s ultra-loose policy.

More than three years of huge asset purchases failed to boost inflation, so the central bank switched its policy framework last September to focus on market interest rates instead of the pace of money printing.