A possible delay in hitting the price goal for inflation was signaled by Bank of Japan Governor Haruhiko Kuroda on Friday, stating that the central bank may push back the timing on October’s rate review, given the core weakness in price growth.
Kuroda did not further elaborate how such a postponement could influence the bank’s policy decision. However, he did emphasize that the BOJ’s bond purchases may slow down in the future if 10-year bond yields are unable to top its target of zero percent.
On Friday as he spoke in parliament, Kuroda claimed he sees the country’s economic growth accelerate in the next fiscal year on the improving chances for global growth.
However, the bank Governor said that the recent weakness in core consumer prices may force the BOJ to slash its inflation estimates at a quarter review of its forecasts at a October 31 to November 1 meeting. The aforementioned weakness in consumer prices marked the sixth consecutive month of yearly declines in August.
"There may be some modification to our forecast that inflation will hit our 2 percent target during fiscal 2017," Kuroda stated, adding that any such reduction would be due mainly to the effect of weak oil prices and the yen's fresh upsurges that clamped down import expenses.
Kuroda also stated in a seminar that the central bank will continue to employ an exceptionally accommodative, expansionary monetary policy. Not just to hit to 2% but to let actual inflation go beyond that 2%.
Sources have shared that the BOJ will marginally cut next fiscal year's inflation prediction in the quarterly review, although the bank is seen holding off on easing after having just overhauled its policy framework in the previous month.
Japan’s central bank has constantly been driven to push back the timing for reaching its somewhat ambitious inflation target of 2% as oil prices continue to fall and weak consumption dragged overall prices. In September, BOJ changed its policy target to interest rates from escalating the monetary base after its substantial asset purchases flopped to generate sustained inflation.
Under a new "yield curve control" framework, the BOJ's focal methods for monetary easing would be to extend negative interest rates from the current -0.1%, or downgrade its 10-year bond yield target which is currently set at nearly zero percent.
Kuroda restated that the BOJ may decelerate the pace of its bond purchases from the current pace of 80 trillion yen or $769 billion per year as long as it can reach its new yield target. However, he added that, “We don't see an immediate possibility of our bond buying falling sharply from the current pace."
The BOJ Governor also cited that the central bank believed there was no need to set an inelastic range on how much 10-year yields could stray from the target of nearly zero percent, claiming that the target was a loose one to permit some room for allowances.
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