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Economy

BOJ lowers inflation forecast despite ultraeasy policy

2% inflation is seen beyond reach for Gov. Kuroda

TOKYO -- The Bank of Japan revised down its inflation projections for the current fiscal year to March 2022, as prices remain subdued after more than eight years of aggressive monetary easing under Gov. Haruhiko Kuroda.

Core inflation, which excludes prices of fresh food items, is projected at 0.1% for the current fiscal year, according to the median forecast of the central bank's nine policy board members. The projection was released in the BOJ's quarterly outlook report.

At a news conference, Kuroda expressed regret over taking so long to overcome deflation, and vowed to press on with the monetary easing campaign to change people's deflationary mindset. "Once people experience price increases, they will form a view that inflation does happen," he said.

The BOJ said the downgrade reflects lower smartphone connection rates, which have been pushed by the government of Prime Minister Yoshihide Suga. It also said the downgrade is partly the result of continued COVID-19 outbreaks. On Sunday, parts of Japan fell under a third state of emergency. With residents being asked to stay home and some businesses being asked to close, tourism, dining and other sectors are under pressure.

Kuroda said, however, that the drag on the economy from the pandemic will be offset by strong exports, as economic recovery continues overseas. Even for domestic consumption, "spending on goods remains strong," he said.

In January, the policy board members projected a rise of 0.5% for the core consumer price index.

For the fiscal year through March 2023, the final year for Kuroda's two five-year terms, core inflation is projected at 0.8%. Consumer inflation is projected at 1% for the year ending March 2024.

This means Kuroda is not expected to achieve his 2% inflation goal after 10 years of extraordinary monetary easing measures, including large purchases of government debt and equities and zero-interest loans to commercial banks.

Kuroda stressed that he will not relent in his efforts to stimulate domestic demand. "I won't hesitate to take additional easing measures if they help achieve 2% inflation," he said.

In the last fiscal year ended in March, core inflation declined 0.4%. In the U.S., by contrast, core inflation stood at 1.6% in March.

The Japanese economy is projected to grow 4% for the current fiscal year, according to the outlook report. In January, the policy board members projected growth of 3.9%. For fiscal 2022, growth is projected at 2.4%.

The projections indicate that the economy will be in for a strong rebound as consumers are vaccinated, allowing them more freedom to shop, dine out and travel, said Hideo Kumano, an economist at Dai-ichi Life Research Institute.

Kumano noted, however, that the BOJ doesn't expect inflation to rise much above 1% after the pandemic recedes, as the nation's population continues to age and shrink.

After a two-day meeting, the central bank decided to leave its main monetary levers unchanged, including short-term interest rates at minus 0.1% and long-term rates at zero.

In the previous monetary policy meeting in March, the BOJ made adjustments to its policy framework to give more leeway to its operations, in the hope of making the ultra-easy monetary policy more sustainable on a longer-term basis. The changes included removing the annual target for equity purchases and allowing long-term rates to fluctuate in a slightly wider band.

In addition, the BOJ has pledged to provide up to 130 trillion yen ($1.2 trillion) in zero-interest loans to commercial banks to encourage them to lend to borrowers affected by the coronavirus pandemic.

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