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BOJ stays the course toward 2% inflation

Bloomberg

The Bank of Japan on Tuesday kept its record stimulus unchanged and forecast inflation will pick up to its 2 percent price target.

The central bank stuck with its goal of an annual increase in the monetary base of between ¥60 trillion and ¥70 trillion, it said in a statement in Tokyo, as forecast by all 34 economists surveyed by Bloomberg News. Consumer prices excluding fresh food will rise 1.9 percent in the year starting April 2015, the median estimates of board members showed, matching its forecast three months ago.

Economists have pushed back projections for further easing, as Gov. Haruhiko Kuroda signals confidence in the bank’s progress in driving inflation. With the economy forecast to rebound from a contraction last quarter triggered by the April consumption tax increase, Kuroda’s task is to sustain momentum as rising prices and limited wage gains squeeze households.

“The BOJ is confident about the outlook for inflation,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said ahead of the decision. “Additional easing is unlikely any time soon, but the BOJ isn’t clear of risks. The rebound could be weaker than expected, pressuring the BOJ to take more action.”

The BOJ forecast inflation will pick up to 2.1 percent in the year starting April 2016, Tuesday’s statement shows, as it projected in April. The bank lowered its economic growth forecast for the fiscal year that started in April to 1 percent, from 1.1 percent.

The estimates are the median of the nine board members, with the price forecasts excluding the impact of increases in the consumption tax.

Thirty-eight percent of economists in a July 3-9 survey predicted additional easing this year, down from 58 percent last month. The top pick for easing was October.

Kuroda, who was hand-picked to be governor by Prime Minister Shinzo Abe, began the BOJ’s unprecedented easing in April last year to pull Japan out of more than a decade of deflation.

The stimulus helped trigger an 18 percent slide in the yen against the dollar and boosted share prices last year. The currency has since strengthened about 4 percent and the Topix index has dropped.

Prices excluding perishables — the BOJ’s key inflation gauge — rose 3.4 percent in May, the fastest gain in 32 years. Stripped of the impact of April’s 3 percentage point sales-tax increase, the core price index rose 1.4 percent, according to a BOJ estimate.

Itoham Foods Inc. said Monday it would raise prices of some cheese products by an average of 17 percent from August. Meiji Co. said last week that it would increase prices of cheese and butter from the same month.

Incomes have failed to keep up with prices. Base wages, which exclude overtime and bonuses, rose 0.2 percent in May from a year earlier — the first increase in 26 months. Real wages fell 3.6 percent.