TOKYO ⸺ Japan’s central bank is expected to maintain its massive stimulus on Tuesday and project inflation missing its 2% target for years to come, as fresh curbs to combat a spike in COVID-19 cases overshadow the boost to growth from solid global demand.
Japan declared a third, two-week state of emergency for Tokyo, Osaka and two other prefectures to contain the pandemic, clouding prospects for a fragile economic recovery.
In a quarterly report due after its two-day policy meeting ending on Tuesday, the Bank of Japan is expected to stick to its view the world’s third-largest economy is headed for a moderate recovery as robust U.S. and Chinese demand underpins exports.
But the bank is likely to cut this year’s price forecast and predict for the first time that inflation will stay well short of its 2% target beyond Governor Haruhiko Kuroda’s term, which ends in early 2023, sources have told Reuters.
“I think the BOJ pretty much gave up on hitting its price target and decided to focus on maintaining the current framework for the rest of Kuroda’s term,” said Izuru Kato, chief economist at Totan Research.
“It’s doubtful whether maintaining the current policy long enough will push up inflation to 2%. But no one in the government seems to be complaining about weak inflation.”
The BOJ is expected to maintain its short-term interest rate target at -0.1% and that for 10-year bond yields around 0%.
Kuroda is expected to warn of risks from the state of emergency curbs on the economy and reiterate the BOJ’s readiness to maintain its massive stimulus for the foreseeable future, analysts say.
In current projections made in January, the BOJ expects core consumer inflation to hit 0.5% in the fiscal year that began in April and 0.7% the following year.
The bank is seen trimming the price forecast for the current fiscal year due to the impact of cuts in cellphone fees, sources say. It will also produce for the first time growth and price projections for fiscal 2023.
The BOJ conducted a review of its policy tools in March to make them sustainable enough to weather an expected prolonged battle to fire up inflation. Japan’s core consumer prices fell for the eighth straight month in March.
Reporting by Leika Kihara; Editing by Sam Holmes; Reuters