BOJ stands pat on policy as it trims inflation outlook again

Bloomberg

The Bank of Japan left its massive monetary stimulus program unchanged even as it trimmed its inflation forecasts, signaling 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 percent 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 labor 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.

‘LONG-TERM BATTLE’
“They have determined this is a long-term battle and they won’t ease policy further unless something drastic happens,” said Masaki Kuwahara, senior economist at Nomura Securities Co., adding that the BOJ will continue to cut its inflation forecasts even if it “looks bad.” The nine-member board maintained its view that its 2 percent target is likely to be met around the fiscal year that starts in April 2019. The BOJ’s key inflation gauge, which strips out fresh food, rose 0.7 percent in September.
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 percent chance of another rate hike by the Federal Reserve in December. With the BOJ still far from its price target, there was no need to adjust its stimulus program, Kuroda said during a news conference.
He rejected the notion that the BOJ should discuss how it would exit its policy framework in the future, saying that doing so would be “misleading” and negative for markets.
“It’s important to conduct suitable communication at the right time, but now is not that time,” Kuroda said. “When we are at a stage when we are about to shift our policy or are headed toward an exit, I would like to conduct communication and discussions that are grounded on actual circumstances.”
Japan’s Nikkei 225 stock index ended the day barely lower after closing on Monday at the highest level in two decades. The yen weakened in the minutes after the BOJ’s decision was announced, but later strengthened before trading little-changed on the day at 113.09 versus the
dollar as of 5:19 p.m. in Tokyo.