Bank of Japan keeps benchmark interest rate unchanged

by Ben Pena April 28, 2017, 0:58
Bank of Japan keeps benchmark interest rate unchanged

At the two-day rate review ending on Thursday, the Bank of Japan is set to offer a more upbeat assessment of the economy than it did last month as a pick-up in overseas demand bolsters exports and factory output, sources have told Reuters. "That's because an appropriate exit strategy would vary depending on economic, price and financial situations at the time". Trump's plan has been billed as the biggest tax cut in history, but the one-page proposal has thus far failed to offer details on how he will cut deficit, which analysts think can be a hard goal.

But critics say the central bank can not sustain the current framework if its price target remains elusive for too long, as its heavy bond buying is already drying up market liquidity.

The BOJ will continue with its stimulus to "achieve the price stability target of 2% as long as it is necessary for maintaining that target in a stable manner", it said.

Core inflation, which excludes fresh food prices, was 0.2 percent in February.

The BOJ's stance has been that it will adjust its yield curve control policy, aimed at keeping the 10-year government debt yield around zero percent, by adjusting the amount of its bond buying.

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The U.S. Federal Reserve is already embarking on interest rate hikes, while the European Central Bank may send a small signal in June towards reducing stimulus.

In its outlook report, the BOJ cited "geopolitical risks" as one of the downside risks to the economy, along with political confusion in Europe following Britain's vote past year to leave the European Union. Many economists also see inflation picking up later this year, thanks to rising oil prices and a weaker Japanese yen.

"This may happen at its quarterly forecast review in April", said Kazuo Momma, a former top BOJ economist.

But BOJ Governor Haruhiko Kuroda is likely to remind markets that the Japanese central bank is nowhere near an exit from its massive monetary stimulus, with inflation hovering well below the bank's ambitious 2 percent target. Figures for March are due on Friday, with the median of estimates compiled by Bloomberg for another gain of 0.2 percent.

"The BOJ's price forecasts are too optimistic, so there's a very high chance they will be revised down". However it added that "risks to both economic activity and prices are skewed to the downside" and that "achieving the price stability target of not yet sufficiently firm".

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