BoJ Retains Monetary Stimulus; Trims Near-Term Inflation Forecast
The Bank of Japan maintained its monetary stimulus unchanged, as widely expected, after tweaking its policy at the March meeting.
The bank downgraded its near-term inflation forecast and raised its growth projections despite the restrictions related to COVID-19 pandemic.
The board, governed by Haruhiko Kuroda, on Tuesday, voted 8-1 to hold the interest rate at -0.1 percent on current accounts that financial institutions maintain at the central bank.
The bank will continue to purchase a necessary amount of Japanese government bonds without setting an upper limit so that 10-year JGB yields will remain at around zero percent.
According to the quarterly Outlook for Economic Activity and Prices report, the economy will recover, with the impact of the novel coronavirus waning gradually and supported by an increase in external demand, accommodative financial conditions, and the government’s economic measures.
For the fiscal 2021, the bank expects 4 percent real growth instead of 3.9 percent estimated in January.
Citing stronger domestic and external demand, the growth projection for the fiscal 2022 was raised to 2.4 percent from 1.8 percent. Thereafter, growth is seen easing to 1.3 percent in the fiscal 2023.
Inflation is expected to turn positive thereafter and increase gradually, mainly on the back of economic activity continuing to improve and the effects of the reduction in mobile phone charges dissipating. However, the 2 percent inflation target is unlikely to achieve before the fiscal 2023.
The bank lowered its inflation forecast for the fiscal 2021 to 0.1 percent from 0.5 percent but lifted its outlook for the fiscal 2022 to 0.8 percent from 0.7 percent. Consumer prices are forecast to rise 1 percent in the fiscal 2023.
The bank said it will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.
With the slow vaccine rollout set to gather pace over the coming months, activity should start to recover again before long, lowering the need for additional stimulus, Marcel Thieliant, an economist at Capital Economics, said.
The economist expects the BoJ to keep both its short-term policy rate as well as the target for 10-year government bond yields unchanged for the foreseeable future.
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