BOJ ups 2011/12 CPI forecast but keeps long-term view

The Bank of Japan on Tuesday nudged up its price forecast for the year starting in April due to rising commodity prices, but still predicted a slow exit from deflation in a sign its ultra-easy policy will stay in place for years to come.

Tokyo: The Bank of Japan on Tuesday nudged up its price forecast for the year starting in April due to rising commodity prices, but still predicted a slow exit from deflation in a sign its ultra-easy policy will stay in place for years to come.

The BOJ also raised its growth forecast for the year to March, as expected, and said the economy would likely gradually pull out of its lull, further dampening any expectations of an imminent monetary easing.

The central bank, however, largely stuck to its long-term views on prices and growth as anaemic final demand keeps firms from passing on higher costs to consumers, while exports and output have yet to show definitive signs of picking up.

It kept interest rates on hold at a range of zero to 0.1 percent, also as expected.

"The most important thing is that the core CPI forecast for fiscal 2012/13 remains unchanged. The BOJ is saying that while there is some volatility in the near term, their view on prices over the next two years is unchanged despite inflation sentiment in Asia, Britain and to a lesser extent in the United States," said Takuji Okubo, chief economist at Societe Generale Securities.

"There is still no exit strategy for the BOJ's accommodative stance. Markets can be assured that the BOJ is highly unlikely to go for more tightening."

The central bank issues long-term growth forecasts in April and October each year, and reviews them in January and July.

The BOJ raised its consumer price forecast for fiscal year 2011/12 to a rise of 0.3 percent from a 0.1 percent increase in the outlook report issued last October.

It also lifted its GDP forecast for the current fiscal year to growth of 3.3 percent from 2.1 percent, while trimming its forecast for next year to a 1.6 percent increase from a 1.8 percent rise.

Outlook Intact

The new forecasts are roughly in line with a Reuters poll for 3.3 percent growth in the year to March and 1.4 percent growth in the next fiscal year.

Some central bankers feel the economy may manage to pull out of its current lull sooner than initially thought, with the BOJ's top economist saying last week that he expected the pickup could happen as early as March.

BOJ Governor Masaaki Shirakawa may echo this view in his post-meeting news conference. But that is not a certainty as he may want more evidence that exports have recovered sustainably from a late 2010 weak patch before declaring an economic recovery.

While the recent spike in commodity prices may ease deflation later this year, the BOJ is seen keeping its easy policy bias in place unless a pickup in consumer inflation to around 1 percent appears on the horizon.

The BOJ last year cut interest rates effectively to zero and set up a 5 trillion yen (USD 61 billion) pool of funds to buy assets ranging from government bonds to private debt.

The BOJ has said it is ready to top up the pool if the growth outlook deteriorates, but it would have taken a severe financial market shock, such as another yen rally or a stock market slump triggered by Europe's debt woes, to force the bank's hand.

Bureau Report

Tags:

By continuing to use the site, you agree to the use of cookies. You can find out more by clicking this link

Close