BoJ keeps stimulus, economic forecasts unchanged

The board voted 8-1 to keep interest rates and asset purchases at current levels

By BLOOMBERG

TOKYO • The Bank of Japan (BoJ) maintained its massive monetary stimulus programme and kept its price and economic forecasts unchanged. In a small sign of progress, it said inflation expectations had stopped falling.

Governor Haruhiko Kuroda said the central bank wasn’t in a position to consider exiting its current policy after the board voted 8-1 to keep interest rates and asset purchases at current levels. Inflation expectations remain more or less unchanged, versus a previous assessment that they were weakening, the BoJ said, though risks to prices remain “skewed to the downside”.

The yen, which had strengthened as the market reacted to the BoJ’s view of price expectations, weakened after Kuroda’s comments. It traded at 111.15 (RM3.89) against the dollar as of 3:45pm in Tokyo yesterday. The governor said the BoJ is watching the currency market closely.

The central bank forecast the economy to grow 1.4% in the fiscal year starting in April, with inflation of 1.4% over the same period.

With the economy growing and inflation slowly but steadily rising, some investors had started to bet that the BoJ is nearing the point where it begins to normalise its ultraloose monetary policy. The yen gained strength after the BoJ cut its bond purchases earlier this month.

The yen’s rise after the BoJ kept policy unchanged reinforces Bloomberg Economics’ view that Kuroda’s main task yesterday was to damp expectations for near-term tightening.

“Kuroda’s most important job may be to keep premature market anticipation of tightening from pushing the economy off course,” said Yuki Masujima, Bloomberg Economics.

“The decision makes it clear that the BoJ doesn’t want any noise about early tightening now,” said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG and a former BoJ official. “The BoJ could have raised its growth forecast, given recent economic data, but it didn’t because it’s fearful of fuelling speculation of policy normalisation.” He added that “what they fear most is a strong yen”. Some economists do see tightening on the horizon.

Nearly half of those surveyed by Bloomberg said they expected the first move to come later this year. And even a minority of BoJ policymakers are raising the need for future discussions on normalising policy, though they agree that the stimulus programme must continue unchanged for some time, according to people familiar with central bank’s discussions.

The BoJ is lagging behind its global peers in normalising policy after years of unprecedented stimulus. The US Federal Reserve is expected to continue raising rates this year, and some European Central Bank officials are calling for the end of asset purchases ahead of a policy meeting later this week.