The Bank of Japan said Thursday it will refrain from taking additional monetary easing steps amid encouraging signs in the economy and downgraded its forecast for the country’s core consumer price index in fiscal 2012 on the back of the recent fall in crude oil prices.
Closing its two-day meeting, the BOJ said the fiscal 2012 core CPI, which excludes volatile fresh food prices, is expected to rise 0.2 percent from the previous year, compared with a 0.3 percent increase estimated in April. It kept its projection for fiscal 2013 consumer prices unchanged at a 0.7 percent rise.
It also said the economy could expand 2.2 percent in terms of real gross domestic product in fiscal 2012, slightly off from the 2.3 percent growth projected in April. For fiscal 2013, which starts next April, it forecast a 1.7 percent expansion, unchanged from its earlier outlook.
The BOJ stressed that the year-on-year rate of change in the core CPI is “expected to be broadly in line with the April forecasts” stipulated in the report on the outlook for economic activity and prices. But the fact that the projections are below the BOJ’s 1 percent inflation goal may spur calls for more monetary easing.
The BOJ introduced the inflation goal as part of efforts to end the country’s chronic deflation, saying it will maintain the virtually zero interest rate policy until it can foresee a 1 percent year-on-year increase in the CPI.
To support the economy, the BOJ Policy Board unanimously voted to keep the bank’s key short-term interest rate steady at around zero to 0.1 percent and maintain the size of its asset purchase program at ¥70 trillion.
However, to deal with bidding shortfalls seen in the central bank’s fixed-rate funds-supplying operation against pooled collateral and other purchases, the BOJ said it will decrease the maximum outstanding amount of the operation by about ¥5 trillion and increase the purchases of treasury discount bills by about ¥5 trillion.
The BOJ maintained its assessment that the economy “has started picking up moderately as domestic demand remains firm,” mainly supported by demand related to reconstruction in areas hit by the March 2011 quake and tsunami. It also said the economy is expected to return to a moderate recovery path as domestic demand remains firm and overseas economies have stopped decelerating, but noted uncertainties remain over such issues as the eurozone debt problem and the likelihood of emerging economies simultaneously achieving price stability and economic growth.