Bank of Japan cuts inflation forecast

Jan 21, 2015, 2:52 AM EST
The Japanese national flag flies atop the Bank of Japan headquarters in Tokyo, Japan, on Friday, Dec. 19, 2014.
AFP/Getty Images

The Bank of Japan cut next fiscal year's inflation forecast on Wednesday and expanded a loan scheme aimed at boosting lending, acting to deflect criticism that it is sitting idly as slumping oil prices keep inflation well short of its target. Reuters reports:

As widely expected, the BOJ held off on expanding its massive stimulus program and maintained its pledge to increase base money at an annual pace of 80 trillion yen ($678 billion) through buying government bonds and risk assets.

In a review of its long-term estimates, the BOJ cut its core consumer inflation forecast for the year beginning in April to 1.0 percent from 1.7 percent projected three months ago. But it slightly raised its inflation forecast for fiscal 2016 to 2.2 percent from 2.1 percent, a sign central bankers are publicly sticking to the view Japan will hit an inflation goal of 2 percent.

With many financial market participants saying the revised inflation forecast means the BOJ is essentially pushing back its goal of hitting 2 percent inflation in the coming fiscal year, Governor Haruhiko Kuroda said the bank expects oil and consumer prices to gradually rebound.

"Consumer inflation will slow for the time being due to oil price falls," Kuroda told a news conference after the decision.

"On the assumption that oil prices will flatten out at current levels and rise moderately ahead, the effect of the oil price decline will ease. If so, we expect consumer inflation to reach 2 percent in a period centered on fiscal 2015."

Hideo Kumano, chief economist at Dai-Ichi Life Research Institute, said the BOJ's logic appears different from October, when falling oil prices triggered an easing.

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