Japan’s central bank cut its inflation forecast and kept its unprecedented monetary easing unchanged as tumbling oil prices handicap efforts to reflate the world’s third-biggest economy.
The Bank of Japan will increase the monetary base at an annual pace of 80 trillion yen ($674 billion), it said in a statement in Tokyo today. The BOJ lowered its inflation projection to 1 percent for the fiscal year starting in April.
The risk of consumer prices falling briefly this year as oil slumps highlights the challenge that Governor Haruhiko Kuroda faces in reaching his 2 percent price goal after almost two years of record easing. He maintains that over the longer term the economy will benefit from the lower energy bill, with the central bank today raising its growth estimate to 2.1 percent for next fiscal year.
“Kuroda will be under pressure to increase stimulus,” Masamichi Adachi, an economist at JPMorgan Chase & Co., said before the decision. “It must be getting harder for him to communicate with market participants, with the economy expected to recover while inflation is slowing due to oil.”
The yen advanced 0.9 percent against the dollar to 117.78 at 12:57 p.m. in Tokyo. The Topix index of shares retreated 1 percent.
The BOJ’s economic outlook, which is more optimistic than forecasts from the International Monetary Fund, coincides with an expected weakening impact of a sales-tax increase last year and as falling oil prices reduce costs for some industries. Japan’s GDP is likely to grow by 0.6 percent this calendar year and by 0.8 percent in 2016, the IMF estimates.