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BOJ abandons target date for achieving 2% inflation

Gov. Kuroda denies waning confidence in central bank's monetary policy

Bank of Japan Gov. Haruhiko Kuroda said that the reason for eliminating the target date for achieving 2% inflation was to prevent the market from speculating on bank policy.

TOKYO -- The Bank of Japan kept monetary policy unchanged at Gov. Haruhiko Kuroda's first meeting of his second term on Friday. At the same time, the central bank deleted from its statement the date for achieving 2% inflation, which had been targeted for "around fiscal 2019."

"[Posting the 2% forecast] was not appropriate as regards communication with the market," said Kuroda at a news conference on the bank's decision to remove the target date from its most recent quarterly "Outlook for Economic Activity and Prices" report.

"There was a market tendency to see our forecast as a deadline, and to seek connection between the forecast and policy actions," Kuroda added.

Investors often bet on the central bank's actions, but these types of trades can affect market stability.

Kuroda did not clearly state why the BOJ chose this meeting to drop the forecast, after pushing back the target date six times since 2013. "It was going to happen one day, and today was the day," said the governor.

Dropping the forecast was viewed by some economists as Kuroda's waning confidence in making the target date, but the governor denied this.

"I think the possibility of inflation reaching 2% in fiscal 2019 is still high," said Kuroda. "The bank will continue to pursue strong monetary easing, with a view to achieving the price stability target of 2% at the earliest possible time."

The BOJ's policy board voted 8-1 to keep the benchmark interest rate at -0.1%. The BOJ also said it will continue to keep the yield on 10-year Japanese government bonds, or benchmark long-term interest rates, near 0%.

The two new deputy governors, central banker Masayoshi Amamiya and ex-Waseda University professor Masazumi Wakatabe, both voted in favor of standing pat.

To hold rates at that level under its yield-curve control policy, the bank will increase its JGB holdings by about 80 trillion yen ($732 billion) a year.

The BOJ unanimously voted to maintain its asset purchasing targets for exchange traded funds and Japan real-estate investment trusts, adding 6 trillion yen of ETFs and 90 billion yen of J-REITs to its balance sheet annually.

The central bank's decision to stay the course was based on its solid economic forecast.

The bank released a new forecast of real gross domestic product growth and inflation for the year 2020, along with the policy statement. According to its quarterly report, the bank sees GDP growing by 0.8% in 2020, and inflation, excluding fresh food, rising to 1.8%.

For 2019, the bank forecast the same 0.8% growth and 1.8% inflation. The growth forecast for 2018 was 1.6%. Inflation for the same period was seen slightly lower, down from the previous 1.4% to 1.3%.

The report showed that the bank expects the economy to stay strong, despite Prime Minister Shinzo Abe wanting to hike the consumption tax to 10% from the current 8% in October 2019.

"There is still momentum building toward the 2% price stability target, but the bank will continue to carefully monitor the situation," said Kuroda.

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