BOJ Has New Reasons Not To Reach Its Inflation Target

  • The BOJ is set to keep interest rates unchanged in the first decision of 2019.
  • The global slowdown provides an excuse to push back the inflation targets.
  • The decision will not change the yen’s safe-haven status anytime soon.

The Bank of Japan makes its first rate decision for the year on Wednesday, January 23rd, late in the Asian session. The BOJ is projected to leave all policy measures unchanged.

The Tokyo-based institution has not materially altered its policy since September 2016. Back then, they pledged to keep 10-year yields around 0%, a stimulative policy that joined the negative interest rate of -0.10%. The BOJ continues buying bonds in its Qualitative and Quantitative Easing (QQE) program which is nearing its sixth anniversary.

The BOJ is aiming at 2% core inflation, but the most recent figures from the Tokyo area showed that 2018 ended with a core inflation level of only 0.9%. Governor Haruhiko Kuroda and his colleagues have repeatedly pushed back the timing of reaching the elusive 2% goal. Headline national inflation stood at only 0.7% in 2018.

Back in 2018, Kuroda hinted that they would perhaps begin withdrawing stimulus in the Fiscal Year 2019 (which begins in April 2019) if inflation gets closer to the target. He did not repeat those words and prices have not gone anywhere fast either.

Same forecast downgrade, new reasons

So, the only notable change due in the first decision for 2019 is a downgrade of forecasts. The projection for 2019 is set to be trimmed from 1.4% to 1% and also the 2020 forecast is set for a reduction.

This time, the BOJ has new reasons to lower its outlook. The global economy is slowing down. China reported the weakest growth level in 28 years. The International Monetary Fund (IMF) lowered its global growth forecast to 3.5% for 2019. The euro-zone economies are showing growing signs of no-growth. The US is only the economy pushing forward, but it cannot do so on its own.

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