‘Consumer price growth is around zero, which makes all of these price forecasts look overly optimistic. The BOJ upgraded its economic assessment, but this is due more to overseas demand. Japan’s labor market is tight, but retailers still want to cut prices.’ – Shuji Tonouchi, Mitsubishi UFJ Morgan Stanley Securities
As markets expected, the Bank of Japan left its monetary policy unchanged at its meeting on Thursday; however, policymakers an optimistic and confident view on the economy in the future amid higher oversees demand. The Central bank voted to keep its short-term interest rate at -0.10% and asset purchases unchanged at about 80 trillion yen ($700B) annually. At yesterday’s meeting, the Bank also cut its core inflation forecast for the year ending in March 2018 to 1.4% from 1.5%, due to low services and durable goods prices. Moreover, policymakers stated that their inflation projections remained weak and, therefore, the Bank’s monetary policy could be kept on hold for an indefinite period of time. Although, the BoJ expressed hopes that inflation would reach its 2% target in the year ending March 2019. Nevertheless, a majority of economists doubt that inflation will pick up as the BoJ forecasts with subdued pay growth putting pressure on consumer spending. Furthermore, back in February, consumer prices rose just 0.2% on an annual basis amid weak consumption. Overall, the Japanese economy is expected to continue expanding at a moderate pace, according to the Bank’s projections. However, the BoJ is unlikely to withdraw some of its stimulus in the near-term.
