Japan's central bank to maintain aggressive easing policy as inflation barely above zero

Source: Xinhua| 2018-01-23 18:58:10|Editor: Liangyu
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TOKYO, Jan. 23 (Xinhua) -- The Bank of Japan (BOJ) announced Tuesday it would maintain its aggressive monetary easing policy as it continues to grapple to achieve its lofty 2 percent inflation target with the bank conceding inflation is just above zero despite a moderate economic expansion.

"Japan's economy is expanding moderately but inflation remains weak," BOJ Governor Haruhiko Kuroda told a press conference after the conclusion of the central bank's two-day policy board meeting.

"Other countries are facing similar situations but unlike these countries, many of whom are seeing inflation move around 1.5 percent, inflation, excluding energy costs, is barely above zero percent in Japan," Kuroda said.

The BOJ opted on Tuesday to keep its deposit rate unchanged at minus 0.1 percent and the 10-year yield target at around zero percent.

The BOJ also opted to maintain the level of purchases of exchange-traded funds (ETFs) among other assets, with the BOJ chief saying such purchases were having a positive economic impact and would not be reviewed in the immediate future.

"Our ETF buying is one aspect of our monetary policy framework, and has had a positive impact on the economy and prices by pushing down risk premiums. The purchases have played a big role," Kuroda maintained.

He added that due to there being no indications that investors "are becoming excessively bullish on stock prices" that there is no problem in terms of corporate governance. "There is no need to review our ETF purchases now," the BOJ chief said.

The central bank earlier this month spooked markets by unexpectedly reducing its procurement of long-term government bonds during a daily market operation, which caused long-term interest rates and the yen to jump.

This prompted some analysts to speculate that the BOJ might have been moving towards tapering measures in line with other major central banks like the European Central Bank or the U.S. Federal Reserve.

But with inflation still well below 2 percent, economists have said the bank has little option other than to continue with its massive easing measures, despite an improving economy.

Kuroda on Tuesday conceded that the bank's exit from its aggressive easing policy was likely some way off with the exact timing not yet a point for discussion.

"There is still some distance to 2 percent inflation, so we're in no condition yet to debate the timing of an exit from ultra-easy monetary policy," said Kuroda.

Japan's core consumer price index, with the exception of fresh food prices, increased 0.9 percent on year in November, marking the 11th straight month of increase, but if energy prices are also excluded, consumer prices increased a mere 0.3 percent in the recording period.

The figure is a long way short of the central bank's target, delayed multiple times, of achieving an inflation rate of 2 percent.

Despite an on-year rise in wholesale prices, however, the BOJ is still struggling to convert the effects into a significant rise in inflation as business confidence remains low with companies concerned that hiking their prices will repel consumers and adversely hit their bottom lines.

Consumers and households, amid stagnant wages and concerns for Japan's economic outlook -- despite a fairly solid track record recently -- have continued to tighten their purse strings, economists have highlighted.

Earlier this month, Japan's most powerful business lobby, known here as Keidanren, urged its member companies to implement a 3 percent pay hike, as part of its overall guidelines for 2018 spring wage negotiations, which kicked off this week.

Indicative of continued deflationary pressure here in Japan, Keidanren called for pay hikes not just through scaled increases, but also through bonuses and other incentives in a bid to stimulate consumption and to "contribute to Japan's full exit from deflation" and further expansion of a virtuous cycle in the country's economy.

But Kuroda, maintaining the BOJ's habitually upbeat tone regarding its depleted easing arsenal being able to overcome decades of deflationary pressure sooner rather than later, said that looking ahead further moves would be made "looking at the economy, prices and financial developments from the viewpoint of achieving 2 percent inflation at the earliest date possible."