BOJ to predict inflation falling short of its target for
three years: sources
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[April 18, 2019]
By Leika Kihara
TOKYO (Reuters) - The Bank of Japan is
expected to forecast next week that inflation will remain below its 2
percent target through the fiscal year that ends in March 2022, sources
say, a sign its massive stimulus will stay in place for the foreseeable
The estimate highlights the dilemma the BOJ faces as subdued inflation
forces it to maintain its ultra-easy policy, even as years of near-zero
interest rates strain financial institutions.
In quarterly projections due next week, the central bank may slightly
cut its growth and price forecasts for the current fiscal year, ending
in March 2020, due to headwinds from slowing overseas growth, say
sources familiar with its thinking.
For the first time, the BOJ will also release forecasts for fiscal 2021
that will project inflation to move above 1.5 percent but fall short of
2 percent, the sources said on condition of anonymity.
"Inflation is holding up but isn't accelerating much either," said one
source. "Inflation will gradually head toward 2 percent but the pace
will be moderate at best."
With its 2 percent inflation target seen out of reach, the BOJ will join
other major central banks that are being forced to delay plans to end
crisis-mode policies due to soft inflation and growing signs of a global
STICKING TO ITS VIEW
At the two-day rate review ending on Thursday, April 25, the BOJ is
widely expected to maintain its pledge to guide short-term rates at
minus 0.1 percent and long-term yields around zero under a policy dubbed
yield curve control (YCC).
The central bank is also seen sticking to its view that Japan's economy
will emerge from a soft patch and resume a moderate expansion in the
second half of 2019, they said.
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A Japanese flag flutters atop the Bank of Japan building under
construction in Tokyo, Japan, September 21, 2017. REUTERS/Toru Hanai
"As long as the economy is in good shape and there is no major external shock,
the BOJ can stay pat even if inflation does not hit 2 percent," another source
Under projections issued in January, the BOJ expects core consumer inflation to
hit 1.1 percent in the current fiscal year and accelerate to 1.5 percent the
It also predicts the economy will grow 0.9 percent this fiscal year and 1.0
percent the following year.
The BOJ is in a bind. Years of heavy money printing have failed to fire up
inflation to 2 percent and left it with little ammunition to fight the next
Prolonged easing has also added to pains for regional banks, already facing
slumping profits due to an aging population and an exodus of borrowers to big
The BOJ has notched up its warning against the rising drawbacks of its policy.
In a semi-annual report analyzing the banking system on Wednesday, it said
nearly 60 percent of regional banks could suffer net losses a decade from now if
corporate borrowing keeps falling in line with the current trend.
(Reporting by Leika Kihara; Editing by Richard Borsuk)
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