Bank of Japan Pushes Out Inflation Goal, Says Current Stimulus Is Enough

05/01/2015 9:05 am EST

Focus: GLOBAL

Jim Jubak

Founder and Editor, JubakPicks.com

The BOJ seems to be betting lower oil prices will, in the near term, power the Japanese economy as consumers have more money to spend and then that rising oil prices will push up inflation, but MoneyShow’s Jim Jubak points out that, so far, the first part of that bet isn’t working.

Say Goodbye to Abenomics, the bold policy designed to bust the Japanese economy out of its decades-long deflationary funk.

Well, certainly say goodbye to the bold part anyway.

Faced with evidence that the country will miss its target of 2% inflation this year, Thursday, April 30, Bank of Japan Governor Haruhiko Kuroda said no further easing of Japan’s central bank was needed.

Instead, the bank pushed out its timetable for achieving 2% inflation to 2016. Thursday’s meeting of Japan’s central bank ended with the Bank of Japan standing pat on its current plan to purchase 80 trillion yen ($672 billion) in assets annually.

This inaction came even though the bank announced that it had cut its forecast for inflation in the year that ends in March 2016 to 0.8% from a January forecast of 1%. But the bank also forecast that inflation would, somehow, climb to 2% in the following year.

Kuroda and the bank seem to be betting that lower oil prices will, in the near term, power the Japanese economy as consumers have more money to spend and then that rising oil prices will push up inflation. So far, though, the first part of that bet isn’t working. Retail sales in Japan fell 1.9% in March from February, according to JPMorgan Chase.

If the Bank of Japan is to increase stimulus, the most likely timeline points to a move in July. That leaves a lot of time for Japanese consumers and companies to decide that, once again, the government has taken its foot off the monetary accelerator too soon.

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