TOKYO (AFP) -The Bank of Japan on Wednesday slashed its inflation outlook as plunging oil prices dent efforts to slay years of deflation, but policymakers still boosted their growth forecasts and said the economy was rebounding.
The BoJ, which held off fresh easing measures after a two-day policy meeting, said inflation for the year starting in April would come in at 1.0 per cent, well down from an earlier 1.7 per cent forecast.
But the economy would expand by 2.1 per cent, up from an earlier 1.5 per cent forecast, it said.
The price downgrade underscores how reaching the BoJ’s 2.0 per cent inflation target by early next year looks unlikely, and it may ramp up expectations for another round of monetary easing to kickstart the world’s number three economy.
“We continue to think that policymakers are too sanguine on inflation,” said Marcel Thieliant at Capital Economics.
“The chances of hitting the inflation target are slim without additional monetary stimulus.”
BoJ chief Haruhiko Kuroda insisted that the bank was still on track to reach its goals, and that the BoJ never claimed it would hit its goal in exactly two years.
The target followed the launch of Prime Minister Shinzo Abe’s growth project, dubbed Abenomics, in early 2013. Observers have widely interpreted the bank’s original deadline as early next year.
“Given the drastic moves in crude oil prices recently, the timing could move forward or backward,” Kuroda told reporters after the bank’s policy meeting.
“We’re saying (the timing) is centred on fiscal 2015, we’re not saying within fiscal 2015,” he added.
Plunging oil prices – they have lost more than half their value from above $100 in June last year – would ultimately benefit resource-poor Japan and give the wider economy a shot in the arm, generating higher prices, Kuroda said.
“For Japan, which imports almost all of its crude oil, the price declines are a positive and will lead to stronger corporate earnings and firms’ real purchasing power,” he said.
The BoJ’s inflation target is a cornerstone of Tokyo’s wider bid to turn around years of tepid growth by generating price rises and prompting firms to boost their hiring and expansion plans.
But a sales tax rise in April slammed the brakes on consumer spending, plunging the economy into recession and throwing the success of Abenomics into question.