Bank of Japan Reaffirms 2% Inflation Target as Data Continues to Decline

Analysts are not the only ones divided on the Bank of Japan's chances of reaching the 2 percent inflation goal. Members of the Policy board are also not totally onboard with the timeline. The average forecasts showed that while the board as a whole expects 1.8% in two years the range went from 0.8% to 2.3%.

The Bank of Japan forecast on Friday that inflation will rise to around 2 percent towards the latter half of the next three years due to its massive stimulus plan, a projection analysts say may be too optimistic.

In a reminder of the task ahead, data on Friday showed core consumer prices marked their fifth straight month of annual declines in March even as the yen's recent falls pushed up import costs.

The central bank, charged with overturning years of dogged deflation, held off on offering any fresh policy initiatives after new Governor Haruhiko Kuroda had stunned markets on April 4 by promising to inject about $1.4 trillion into the economy to hit the inflation target in roughly two years.

Private-sector economists forecast 1.00% by 2015/2016. There is a lot of ground between what the Bank of Japan and Kuroda have committed themselves and what the private sector expects in terms of inflation. A lot is riding on Japanese policies not only delivering results, but also being perceived as working as their goal is to get the consumers not holding back purchases as prices will go up. This of course will not happen if there is no credibility that the BoJ can be successful in reaching 2% inflation.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, he established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza