TOKYO, July 30 (Xinhua) — The Bank of Japan (BOJ) on Tuesday opted to maintain its ultra-low interest rates to support the economy despite an uncertain global outlook and looming tax hike from 8 to 10 percent in October.
The central bank’s Policy Board at the conclusion of a two-day meeting, decided in a 7-2 vote that the continuation of a short-term policy rate of minus 0.1 percent would be kept as is, and long-term yields maintained at close to zero percent, as inflation remains well below the bank’s 2-percent target.
The BOJ “will not hesitate to take additional easing measures if there is a chance that the momentum toward achieving its 2 percent inflation target will be lost,” the central bank said in a statement issued after the two-day meeting ended Tuesday.
The central bank also voted to continue to increase its holdings of government bonds at an annual pace of around 80 trillion yen (735.75 billion U.S. dollars) with the board also deciding to leave unchanged its purchases of exchange-traded funds (ETF’s) and other assets.
At the conclusion of the two-day policy setting meeting however, the BOJ did downgrade its forecast for inflation and its growth projection for the next several years.
The central bank said it expects the inflation rate to stand at 1.3 percent in fiscal 2020, lowering its projection from 1.4 percent. In terms of fiscal 2021, the bank maintained its inflation forecast of 1.6 percent, it said.
The BOJ said it now expects Japan’s core consumer price index to increase 1.0 percent in the year through next March, in a downwardly revised assessment from its projection made in April for a 1.1 percent increase.
Despite the downgrades, BOJ Governor Haruhiko Kuroda told a press conference after the policy setting meeting that the bank’s price goal is still in range, and, if momentum is threatened, the central bank will act accordingly and without hesitation.
“I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening. But overseas risks are heightening. If this is prolonged, that could increase risks for Japan’s economy and threaten the economy’s momentum to hit our price goal. If this happens, we will ease policy without hesitation,” Kuroda said.
As for economic growth, the BOJ said that Japan’s real gross domestic product will increase 0.7 percent in fiscal 2019, which is a downgrade from its earlier projection of 0.8 percent growth.
For fiscal 2021, the bank also lowered its growth forecast to an expansion of 1.1 percent compared to its previous forecast of growth of 1.2 percent.
The central bank did however maintain its forecast of economic growth for fiscal 2020 at a 0.9 percent increase.
Kuroda said that the central bank needs to be mindful of risks potentially hampering Japan’s economic growth, but maintained that the economy here was expected to expand moderately.
“It’s true we need to pay attention to downside risks for Japan’s economy. But for now, we expect the economy to continue expanding moderately, and that it is sustaining momentum for hitting our price goal. What’s important is to ensure that momentum by patiently maintaining our powerful monetary easing,” said Kuroda.
The downgrades may be an indication that along with other major central banks such as the United States Federal Reserve and the European Central Bank, the BOJ may be gearing up in the coming months to launch additional easing measures to support growth amid domestic and global economic headwinds.
These headwinds are in the form of international trade issues and uncertain global outlook, as well as a looming consumption tax hike here in October from 8 to 10 percent that will see domestic demand and business spending wane, with possible recessionary results, as has been the case with previous tax hikes here.
But the central bank chief reiterated additional easing measures could be taken quickly and that the bank had intensified its position on the matter.
“Today, we went a step forward by saying we’ll take additional easing steps without hesitation if there is a risk the economy will lose momentum for hitting our price target. Previously, we said only that we will consider acting if the economy loses momentum for hitting our price goal,” said the BOJ chief.
Economists believe that if the Fed goes ahead with its rate cut as is widely expected to be the case on Wednesday, pressure will mount on the BOJ to unleash additional easing measures as the yen is likely to rise significantly against the U.S. dollar, which would harm the nation’s key export sector.
And while some economists here have asserted that the BOJ is running out of ammunition in terms of further easing measures it could take, Kuroda indicated the arsenal remained both ample and varied.
“We can cut (both) short (and) long-term interest rates, increase asset buying or accelerate the pace of base money expansion,” said Kuroda.
“We can also deploy a combination of these steps, or take them further. In any case, we will consider steps within our current policy framework. We aim to stimulate growth by lowering real interest rates… We still have various means to ease policy,” the BOJ chief maintained.
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