Bank of Japan leaves rates unchanged, says inflation is lagging

Bank of Japan leaves rates unchanged, says inflation is lagging

Bank of Japan leaves rates unchanged, says inflation is lagging

At a quarterly review of its long-term projections to be released on Thursday, the BOJ may slightly cut this fiscal year's inflation forecast but project price growth accelerating steadily toward its target in subsequent years, say sources familiar with its thinking.

"The inflation and growth projections, as well as the upgrade of its economic assessment, were all in line with market forecasts, so there was no surprise at this meeting", said Yasunari Ueno, chief market economist at Mizuho Securities.

The divergence between growth and inflation in Japan means the BOJ, which previous year shifted its policy framework to make it more sustainable, risks again being a global outlier on monetary policy. Notably, the International Monetary Fund have also recently raised their projection of Japan's growth in their latest world economic outlook report.

The Bank of Japan has lowered its inflation forecast for the year, indicating an unwind of the unprecedented monetary easing remains distant.

In the quarterly review, the BOJ cut its core consumer inflation forecast for the year ending in March 2018 to 1.4 percent from 1.5 percent. "The prerequisite for such debate to happen is for inflation to achieve 2 percent".

Policymakers at the Bank of Japan have made a decision to keep its massive easing program unchanged to achieve its 2-percent inflation target.

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"The BOJ's price forecasts are too optimistic, so there's a very high chance they will be revised down". However, it maintained it aims to achieve its price target by next year. Analysts also expect the central bank to maintain a loose pledge to keep increasing its government bond holdings by 80 trillion yen ($719 billion) per year.

During a news conference held later in the day, Kuroda said the bank will keep a close watch on geopolitical risks.

"Discussing an exit strategy in detail at this time would bring turmoil to financial markets", he said.

Construction in preparation for the 2020 games is expected to pick up next year, though the BOJ has estimated it will contribute only 0.7 percent of GDP in 2018.

But core consumer prices for February rose just 0.2 percent from a year earlier, as weak private consumption has discouraged companies from raising prices.

David Lloyd of British asset management firm M&G Investments said that his "conversations with central bank staffers" suggest the ECB is not concerned about market ructions that tightening policy would cause.

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