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Economy

BOJ loses sight of exit after third revision of price projection

Free education and cheaper mobile rates to add to downward pressure

Bank of Japan Gov. Haruhiko Kuroda speaks to journalists on Jan. 23 after the central bank's two-day policy board meeting. (Photo by Arisa Moriyama)

TOKYO -- The Bank of Japan's efforts to stoke inflation suffered yet another setback Wednesday when the central bank cut its fiscal 2019 inflation outlook for the third time in as many quarters, dashing hopes that its ultraloose monetary policy will end anytime soon.

The BOJ now sees the consumer price index -- excluding fresh foods -- rising 0.9% in the fiscal year starting April 1. This is down 0.5 percentage point from the October edition of its quarterly Outlook for Economic Activity and Prices. The fiscal 2020 forecast got a 0.1-point downgrade to 1.4%.

With its arsenal largely depleted and its path to an exit from monetary easing further clouded, many observers say the central bank has a long, hard battle with prices ahead.

Speaking Wednesday after a two-day policy board meeting, BOJ Gov. Haruhiko Kuroda pinned much blame on sinking petroleum prices going back to last fall. "It is believed that the [CPI] growth rate will gradually rise, but the truth of the matter is that it will take time to realize the 2% target," he said.

Last year, the BOJ stopped releasing a timeline for consumer prices to reach 2%. Even in the market, precisely when inflation will meet the price stability target is up in the air.

The central bank's new inflation forecasts exclude the effects of not only the 8% consumption tax rising to 10% this coming October, but also free-education measures planned for 2019 and 2020. Factoring in free education would subtract 0.3 point from the CPI in fiscal 2019 and 0.4 point in fiscal 2020, the BOJ said in a footnote.

There are concerns of the latest pronouncements undercutting hopes of prices rising anytime soon. "It is a downside risk, and I intend to fully monitor it," Kuroda said.

The BOJ forecast also fails to factor in plans by NTT Docomo to slash rates in response to government pressure. Other mobile carriers are expected to follow suit.

Kuroda said in Wednesday's news conference that making a decision based on that prospect would be "difficult" because the discounted mobile plans have yet to be revealed. But "it's possible they will lower prices," he said.

The Dai-ichi Life Research Institute estimates that lower mobile fees will likely push down prices by between 0.4 point and 0.5 point in fiscal 2019 and later.

Kuroda also touched on the global risks presented by the trade war between the U.S. and China. Although Japanese manufacturers are receiving less orders from China, the Japanese economy is expected to continue growing, he said.

"At this point, a risk that will change the main [growth] scenario has not become apparent," Kuroda said. He cited the tentative progress by Washington and Beijing in trade negotiations.

"It appears to be heading toward a settlement," the governor said.

Skepticism persists, his optimism notwithstanding. "Gov. Kuroda is declaring that [the risks] have not impacted the real economic numbers yet, but because of the global economic slowdown, [Japanese] exports to Asia are falling," said Mari Iwashita, chief market economist in the fixed-income, currency and commodities research department at Daiwa Securities.

And the Sino-American trade frictions could depress corporate Japan's earnings, riling up financial markets and hurting the real economy.

The downgraded inflation outlook indicates "that the monetary easing has become a longer protracted battle, and it will be crucial how we ascertain side effects from this point forward," a BOJ source said.

The bank has attempted to correct some of the ultraloose policy's negative impacts by tweaking rate control measures to allow for wider fluctuations in long-term interest rates. But many critics say this is not enough to improve earnings at financial groups or market functions.

A large number of observers see the central bank as running out of options. "The BOJ's ammunition chamber is in a state of emptiness, so any additional easing will be complicated," said Yasunari Ueno, chief market economist at Mizuho Securities.

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