FOCUS: BOJ Policy Stalemate Deepening amid Sluggish Inflation

August 2, 2018

Tokyo- A stalemate is deepening for the Bank of Japan's efforts to combat persistently sluggish inflation in the country.

At a two-day policy meeting through Tuesday, the BOJ adjusted its monetary easing policy in order to "strengthen its commitment" to achieving its inflation target of 2 pct.

The central bank introduced forward guidance for its policy interest rates while deciding to conduct government bond purchases "in a flexible manner" and tolerate some rises in bond yields.

The moves are believed to have reflected a sense of crisis within the BOJ, as the easing campaign is expected to be prolonged further while its negative side effects are increasingly visible.

"The massive BOJ easing now looks endless," said Yasunari Ueno, chief market economist at Mizuho Securities Co.

"If we simply say we'll continue the easing policy for a long time, that wouldn't be enough to win full trust in our monetary policy," BOJ Governor Haruhiko Kuroda told a press conference following the policy meeting.

Ahead of the meeting, BOJ officials were shocked by a July 20 government report that year-on-year growth in the consumer price index excluding fresh food and energy prices decelerated to 0.2 pct in June. "It was totally disheartening," a senior official lamented.

The latest inflation figure came more than five years after the BOJ embarked on "another dimension" of monetary stimulus. At that time, Kuroda expressed confidence that inflation would rise to 2 pct in around two years.

The disappointing CPI result led to downward revisions in the central bank's inflation projections in a quarterly report released on Tuesday.

It will take "more time than we expected" to boost inflation to 2 pct, Kuroda admitted at the press conference. He now projects that the target will be attained sometime after fiscal 2020.

The BOJ now appears to pin hopes on its new forward guidance, which helped the central bank prevent market turbulence following the announcement of the policy decision on Tuesday.

In the guidance, the BOJ said it "intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period."

But it remains uncertain whether the commitment to the superlow interest rate policy in the forward guidance will help resolve the lingering deflationary mindset among people in the country. Jiji Press