Tokyo: The Bank of Japan (BOJ) left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signalling further divergence ahead from its global peers.
Governor Haruhiko Kuroda and the board voted on Tuesday to maintain the central bank’s yield curve control program and asset purchases, a result predicted by all 43 economists surveyed by Bloomberg. The vote was 8-1, with new board member Goushi Kataoka dissenting.
The BOJ is under little pressure to take additional action even though inflation is well below its 2% target. Japan’s economy is on track for the longest expansion in 16 years, stocks are at the highest level in two decades and the labour market is the tightest in a generation. Prime Minister Shinzo Abe’s election win this month has raised expectations that the central bank’s current policy stance will continue, making any turn toward the exit even trickier, according to former board member Sayuri Shirai.
“The BOJ is going to continue to sit tight for a while," Hiroshi Shiraishi, a senior economist at BNP Paribas SA, said before the decision. “From economic growth to stocks and the yen, they are all performing in favour of the BOJ."
The nine-member board maintained its view that its 2% target is likely to be met around the fiscal year that starts in April 2019. BOJ’s key inflation gauge, which strips out fresh food, rose 0.7% in September, a government report showed last week.
The central bank doesn’t see the need to expand its stimulus because it has concluded that the improving output gap and tightening labour market will continue to push inflation higher over the longer term, people familiar with the matter told Bloomberg earlier this month.
Kuroda has stressed the importance of continuing monetary easing even as the BOJ lags behind its counterparts in turning toward policy normalization. The European Central Bank unveiled a plan to reduce bond purchases last week and investors see more than an 80% chance of another rate hike by the Federal Reserve in December.
Kataoka, a reflationist who joined the board in July, said at today’s meeting that it’s appropriate for the BOJ to buy Japanese government bonds so that the 15-year yield would remain at less than 0.2%.
He also dissented from the inflation overshooting commitment, saying that if there was a delay in reaching the price target due to domestic factors, the BOJ should take additional easing.
Kataoka is unlikely to shift the BOJ’s course, according to economists, including Nobuyasu Atago, chief economist at Okasan Securities Co. and a former BOJ official. Bloomberg