Haruhiko Kuroda, governor of the Bank of Japan (BOJ) is unlikely to realise his pledge of 2 percent inflation during his tenure at the central bank as the nine-member board announced that they will be toning down monetary stimulus despite a downgrade in their price forecast.
The BOJ board are expected to discuss operational minutia related to the new policy framework introduced at the September meeting, such as how to practically implement the new “yield curve control” plan.
Inside sources have told Reuters that a strong yen has continued to hurt exports and weak consumption has also contributed to the poor performance of the economy during this quarter, so many analysts are predicting the BOJ may drop some hints of an overall downgrade at their quarterly review meeting.
The meeting may also shatter governor Kuroda’s dream of hitting 2 percent inflation before his tenure ends in 2018, as the board is likely to extend the timeframe for hitting what many economists thought was an overly ambitious target, with the BOJ themselves now projecting inflation will hit that particular level well into 2018 at the earliest.
The general purpose of the BOJ’s recent change in policy has been to bring in measures that are more focused on long-term solutions to counter deflation. Rather than simply swelling base money, they are now expected to continue with the 0.1 percent short-term interest rates and deliver on their promise to steer the benchmark 10-year government bond yields around the zero percent mark.
Japanese economists are worried that certain volatile political situations, such as the upcoming U.S. presidential election, might derail the country’s economic recovery.
Some experts believe that just because the central bank has downgraded their inflation projections it doesn’t necessarily mean additional easing won’t come with it.
“It’s a difficult environment to work in central banking this year and its tricky to predict with any certainty which way the BOJ are going to go with easing in the next few months,” said a senior spokesperson at CITIC Tokyo International in a phone interview. “The inflation forecast seems to have been put on the back burner, but some bank officials have said the BOJ are still willing and able to forge ahead with stimulus if the need arises.”
