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.”
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.