• Kyodo, Reuters

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The Bank of Japan on Thursday trimmed its economic growth and inflation forecasts for the year through March 2022, keeping its ultraloose monetary policy intact to buttress a fragile economic recovery from the COVID-19 malaise.

The BOJ gave the bleaker economic outlook after a two-day policy meeting, as parts shortages have hit automakers such as Toyota Motor Corp. that have been forced to cut output. COVID-19 restrictions that were in place until recently have delayed a recovery in the services sector.

The central bank said the economy will likely grow 3.4%, rather than the 3.8% projected earlier.

The BOJ also projected inflation at well below its 2% target for at least two more years, reinforcing market bets it will lag other central banks in dialing back crisis-mode policies.

In fresh quarterly estimates, the BOJ cut its consumer inflation forecast for the year ending in March to 0% from 0.6% due largely to the impact of cellphone fee cuts and a change in the base year for the price index.

The projections highlight the policy gap between Japan and other economies.

In Australia, core inflation sped to its fastest annual pace since 2015. Earlier on Thursday, the Reserve Bank of Australia made no offer to buy a government bond that is the linchpin of its stimulus program, stoking market speculation about an early hike in interest rates.

And overnight, the Bank of Canada jolted markets by ending its bond buying altogether and flagging a hike as soon as April.

“While other countries are gradually moving towards reducing monetary stimulus, the BOJ is living in a totally different world as an outlier from the global trend,” said Masamichi Adachi, chief economist at UBS Securities.

“Given tepid inflation expectations, the BOJ will stick to easing policy under yield curve control at least until Governor Kuroda and his two deputies serve out their terms in 2023.”

As widely expected, the BOJ maintained its target for short-term interest rates at negative 0.1% and that for 10-year bond yields around 0% at the two-day rate review that ended on Thursday.

Japan’s economy emerged from last year’s pandemic-induced doldrums as robust overseas demand propped up exports, offsetting some of the weakness in consumption.

But supply bottlenecks and chip shortages have hit manufacturers, clouding the outlook for the export-reliant economy.

Rising commodity costs have pushed Japan’s wholesale inflation to a 13-year high in September. But the pass-through to households has been remarkably slow due to sluggish domestic demand, keeping consumer inflation stuck around zero.

That leaves Japan as an outlier, especially as intensifying global inflation pressure is prompting more central banks to consider withdrawing their massive stimulus.

Economists from around the world expect 13 of 25 central banks would raise rates at least once before the end of next year, a global Reuters poll showed.

The combination of parts shortages, higher energy and material costs as well as a weaker yen is making the job harder for the BOJ.

The BOJ will continue to buy exchange-traded funds with an upper purchase limit set at ¥12 trillion ($106 billion) a year. The policy board also decided to keep funding support for struggling firms amid the pandemic.

Despite external headwinds to growth, the BOJ offered an upbeat view on Japan’s recovery prospects and described the recent slowdown in exports and output as “temporary.”

The bank upgraded the growth outlook for the year from next April to 2.9% from an earlier projection of 2.7%.

“The economy is likely to recover as the impact of the pandemic gradually fades,” it said, adding the strength in the corporate sector will gradually spread to households.

The BOJ also said inflation expectations were “picking up,” pointing to the chance rising wages will gradually make households more accepting of price hikes.

“As firms become eager to change their price-setting behavior, more of them could start to pass on costs and raise prices,” the BOJ said in the report.

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