BOJ maintains ultra-low rates, no plans to review policy framework despite stagnant inflation
The Bank of Japan (BOJ) on Tuesday opted to maintain its ultra-low interest rates and upgraded its economic forecasts despite a backdrop of largely stagnant inflation, well below the bank's lofty 2-percent target.
Japan's central bank voted to keep unchanged its short-term interest rate at minus 0.1 percent and guide long-term yields at close to zero percent.
The BOJ, at the conclusion of its two-day policy setting meeting, also opted to continue with its massive asset purchasing program.
The bank's latest outlook report saw the BOJ raise its growth forecast for fiscal 2019 through March to 0.8 percent from 0.6 percent projected in October, after the government's stimulus package to deal with the negative fallout from of the Oct. 1 consumption tax hike.
At a press conference on Tuesday, BOJ Governor Haruhiko Kuroda maintained that the adverse effects of the sales tax hike had been limited and that consumer demand had not waned to a point to be overly concerned.
"Non-durable goods sales are firm. Consumption remains in good shape. I don't think consumption is in a downtrend," Kuroda said after the BOJ's Policy Board meeting.
However, while the BOJ chief pointed to risk appetite returning to stock markets and signaled cautious optimism over the global economy, as concerns over major trade issues have abated somewhat and geopolitical jitters over tensions in the Middle East have subsided for the time being, he said downside risks remain.
"Progress in trade talks and Brexit have led to an improvement in risk sentiment, pushing up stock prices and long-term rates in many countries. But uncertainty remains. There are also geopolitical risks in the Middle East," said the BOJ chief.
"While risks surrounding global growth have subsided somewhat, they remain large," Kuroda added.
He went on to say that if there were a significant uptick in the global economy, then the BOJ's might discuss modifying its forward guidance on interest rates, but maintained that as things stood at the moment, including receding global risks, the bank's current monetary policy was appropriate.
"If the economy accelerates dramatically, there could be some debate. But for now, it's appropriate to maintain our current policy stance. Various overseas risks remain, so the current monetary policy with an easy bias will be sustained for some time," Kuroda said.
The central bank's report also revealed it had upwardly revised its forecasts of rises in real gross domestic product for fiscal 2020 and 2021 from 0.7 percent and 1.0 percent, to 0.9 percent and 1.1 percent respectively.
In addition, for each of the three years through fiscal 2021, the BOJ lowered its inflation forecast by 0.1 point.
The bank said it now forecasts core consumer prices to increase 0.6 percent in fiscal 2019, 1.0 percent in fiscal 2020 and 1.4 percent in fiscal 2021. With the figures still coming in well below the BOJ's lofty price stability goal of 2 percent, Kuroda said the bank was not considering reviewing its fundamental policy framework, as has been the case with the U.S. Federal Reserve and the European Central Bank (ECB).
"It's true that the BOJ must be mindful of the impact prolonged ultra-low rates could have on financial intermediation. But the benefits of our policy still exceed the costs. The BOJ will continue to pursue powerful monetary easing to achieve 2 percent inflation," Kuroda stated.
"In Japan, inflation is unfortunately distant from our 2-percent target. Japan's real economic growth is at appropriate levels, the job market is very tight. But wage and price growth is slow. It's premature to change our monetary policy framework, or start debate on it," the BOJ chief said.
As for the BOJ board's vote on Tuesday, the concluding day of its two-day policy setting meeting, the Policy Board voted 7-2 to keep its monetary policy unchanged.