BOJ Lowers Inflation Forecast to 1 Percent

Two years into so-called Abenomics – a mix of aggressive monetary and fiscal policy plus structural reform – the Bank of Japan is struggling to reach an ambitious inflation target and convince Japanese that years of deflation are in the past.

Instead, inflation is slowing, the economy is only slowing emerging from recession and confidence among the economy’s bedrock manufacturers is slipping.

On Wednesday, the Bank of Japan (BOJ) sharply cut its inflation forecast and the governor conceded it may take longer than expected to hit 2 percent inflation, underlining the challenges of meeting the target as oil prices continue to slump.

The yen rebounded against the dollar and Japanese equities fell after the central bank held off on expanding its stimulus drive, despite nearly halving its core consumer inflation forecast for the year beginning in April to 1.0 percent.

Governor Haruhiko Kuroda defended the decision, saying that while the lower cost of fuel may weigh on inflation short-term, it will stimulate the economy and thus accelerate price growth.

“Looking at wage negotiations and inflation expectations, fortunately there is no concern of Japan being beset by a deflationary mindset again,” Kuroda told a news conference.

“If Japan is making steady progress toward achieving 2 percent inflation, there’s no need to take additional steps.”

via Reuters

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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, Alfonso Esparza 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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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