The Bank of Japan on Wednesday slashed its inflation outlook as plunging oil prices dent efforts to slay deflation, but policymakers boosted their forecasts of growth and said the economy was rebounding.
The bank held off on fresh easing measures after a two-day policy meeting. It said inflation for the year from April would come in 1.0 percent, well below an earlier 1.7 percent forecast.
But the economy would expand by 2.1 percent, up from 1.5 percent, it said.
The price downgrade suggests the BOJ’s 2.0 percent inflation target by early next is increasingly unlikely, and it may ramp up expectations for further stimulus to kick-start the world’s number three economy.
BOJ Gov. Haruhiko Kuroda has repeatedly pledged to do whatever is necessary to achieve the inflation target. Observers keenly awaited what Kuroda would say about possible further measures in the post-meeting press briefing. The bank surprised markets in October when it announced a huge expansion of its asset-buying program.
Kuroda has previously acknowledged that falling oil prices are threatening the inflation bid, but he said cheaper energy should give the wider economy a shot in the arm and generate higher prices in the longer term.
“Kuroda will be under pressure to increase stimulus,” said Masamichi Adachi, an economist at JPMorgan Chase & Co.
“It must be getting harder for him to communicate with market participants, with the economy expected to recover while inflation is slowing due to oil.”
Oil prices have more than halved from above $100 in June last year.
The meeting comes a day before European Central Bank policymakers are widely expected to give the go-ahead to a huge bond-buying program aimed at propping up the ailing eurozone economy.
The BOJ’s inflation target is a cornerstone of Tokyo’s wider bid to turn around years of tepid growth by generating price rises and prompting firms to boost their hiring and expansion plans.
But a sales tax rise in April slammed the brakes on consumer spending, plunging the economy into recession during the third quarter and throwing into question Prime Minister Shinzo Abe’s growth project, dubbed Abenomics.
The BOJ, however, on Wednesday maintained its view that the economy was on track for recovery, and said its longer-term inflation view remains unaffected.
Inflation in the year starting April 2016 would come in at 2.2 percent, it said.
“With regard to the CPI (consumer price index), the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude oil prices,” the bank said in a statement.
The rest of the statement was largely a mirror of the one issued after the BOJ’s meeting in December, when the bank struck a more upbeat view of economy, saying exports were showing signs of picking up while factory output was bottoming out.
“Apart from a minor tweak to its lending programs, the Bank of Japan left policy settings unchanged today and signaled no concern about the impact of lower oil prices,” Capital Economics said after the decision.
“The chances of additional stimulus being announced as early as April as we currently expect have thus diminished somewhat.”