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Bank of Japan’s governor Haruhiko Kuroda speaks during a news conference at the central bank’s headquarters about monetary policy on June 15, 2018.MARTIN BUREAU/Getty Images

The Bank of Japan downgraded its assessment on inflation and its governor stressed his resolve to keep the money spigot wide open, reinforcing views Japan will lag well behind its U.S. and European peers in dialling back crisis-mode policies.

BOJ Governor Haruhiko Kuroda said structural changes in the economy, such as rising service-sector productivity, may be holding back inflation, signalling the central bank will look more closely into factors curbing prices at next month’s rate review.

“Japan’s economy is seeing labour markets tighten and the output gap improving, but prices aren’t rising much. As such, it’s most appropriate to patiently maintain our powerful monetary easing,” Kuroda told a news conference.

As widely expected, the BOJ maintained its ultra-loose policy on Friday, keeping its short-term interest rate target at minus 0.1 per cent and a pledge to guide 10-year government bond yields around zero per cent.

The move contrasts with the European Central Bank’s decision to end its asset-purchase program this year and the U.S. Federal Reserve’s steady rate increases, which signalled a break from policies deployed to battle the 2007-2009 financial crisis.

“Consumer price growth is in a range of 0.5 to 1 per cent,” the BOJ said in a statement accompanying the decision. That was a slightly bleaker view than in the previous meeting in April, when it said inflation was moving around 1 per cent.

Kuroda said it was natural for the BOJ’s policy direction to diverge from that of the Fed and the ECB, given the difficulty of eradicating Japan’s sticky deflationary mindset.

“Each country must opt for the best monetary policy in light of its economic and price conditions,” he said, adding it was premature to debate an exit strategy from ultra-easy policy.

The delay in pulling out of crisis-era stimulus, however, would leave the BOJ with a lack of ammunition to fight another economic downturn, even as its U.S. and European peers start restocking their tool-kit.

“No matter how long the BOJ continues its current easing, it won’t be able to achieve 2 per cent inflation target for the foreseeable future,” said Izuru Kato, chief economist at Totan Research.

“The Fed and ECB are moving flexibly to rectify excessive monetary stimulus as their economies expand, but the BOJ would lack such flexibility in guiding policy as long as it persists in achieving the 2 per cent inflation target.”

The BOJ stuck to its view the economy was expanding moderately, unfazed by a first-quarter contraction that many analysts blamed on temporary factors such as bad weather.

But it maintained its cautious assessment on prospects for hitting its elusive 2 per cent inflation target, saying that inflation expectations were moving sideways.

In a sign of concern over feeble price growth, BOJ board member Goushi Kataoka – a consistent, sole dissenter to keeping policy steady – said the central bank should ramp up stimulus if it offers a bleaker view on inflation expectations in the future.

Conceding that recent price moves have been “somewhat weak,” governor Kuroda said his board will deepen debate at next month’s policy meeting on what is keeping inflation subdued.

Among the factors may be a sharp rise in nonmanufacturers’ productivity in Japan, as companies streamline operations through IT investment to meet labour shortages, he said.

“This is good for the economy long-term but may prevent prices from rising much in the short run,” Kuroda said.

Core consumer prices in April rose 0.7 per cent from a year earlier, slowing for the second straight month, casting doubt on the BOJ’s view inflation is on track to meet its target.

Sources have told Reuters the BOJ will scrutinize factors that are keeping inflation weak at the July meeting, when it conducts a quarterly review of its long-term growth and price projections.

While soft inflation keeps the BOJ from dialling back its radical stimulus, some BOJ policy-makers have openly voiced concern over the rising cost of prolonged easing such as the negative effect of near-zero rates on bank profits.

As years of massive bond buying dry up market liquidity, the BOJ has slowed its debt purchases to half the pace it pledges to sustain what some analysts describe as “stealth tapering.”

“It is almost certain the BOJ will cut its inflation forecasts at its next meeting in July,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“The BOJ is already stealth tapering and it wants to sound out markets for an exit, but it may have to wait until inflation gets above at least 1 per cent.”