BOJ maintains stimulus, revises up fiscal 2014 GDP forecast
(Reuters) – The Bank of Japan stopped short of officially forecasting it could raise inflation to 2 percent in two years after a review on Thursday, but said it was on track to reach its target and would maintain its massive stimulus as long as needed.
The central bank did revise up its economic growth forecast for the 2014 fiscal year beginning next April to 1.5 percent, judging the world’s third-largest economy could keep growing above its potential despite a sales tax increase next year.
As widely expected, the BOJ had earlier kept intact its intense monetary stimulus launched in April, under which it aims to double base money via asset purchases to meet its target of lifting inflation to 2 percent in roughly two years.
It decision came after the U.S. Federal Reserve maintained its own massive bond-buying program.
In its semi-annual outlook report, the BOJ kept its forecasts for core consumer inflation in fiscal 2014 and 2015 at 1.3 percent and 1.9 percent respectively, excluding the increase in the sales tax, a sign it is on track to meet its goal.
Even though it did not formally forecast inflation reaching 2 percent, economists worry the BOJ is expecting too much from government stimulus designed to offset the impact of the rise in the 5 percent sales tax rate to 8 percent next April.
Some in the BOJ are known to share the market’s doubts.
“The BOJ is being too optimistic given there will be a sales tax hike and could be forced to downgrade these numbers later,” said Takuji Aida, chief economist at Societe Generale Securities.
“The BOJ may have to ease policy again in the second quarter of next year, around the time of the tax hike.”