BOJ holds huge stimulus measures, cautious tone as Ukraine crisis clouds outlook By Reuters

© . A view of signage outside the Bank of Japan headquarters amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon By Leika Kihara TOKYO () – The Bank of Japan maintained its massive stimulus on Friday and warned of mounting risks to a fragile economic recovery from the Ukraine crisis, reinforcing expectations that it will remain an outlier in the global shift towards tighter monetary policy. Rising fuel and commodity prices attributed to the war in Ukraine could push consumer inflation to the BOJ’s 2% target in the coming months, Governor Haruhiko Kuroda said. But such cost inflation will be short-lived and will not prompt the BOJ to withdraw stimulus measures, he added, highlighting the bank’s determination to maintain massive monetary support for an economy that has yet to fully recover. of the wounds of the COVID-19 pandemic. “There is a chance that Japan will see inflation rise around 2% from April. But that is largely due to rising commodity prices, so there is no reason to tighten monetary policy. That would be inappropriate,” he said on a statement. Press conference. The BOJ’s subdued tone stands in stark contrast to the US Federal Reserve and the Bank of England, which raised interest rates this week to prevent soaring inflation from entrenching. As widely expected, the BOJ maintained its short-term interest rate target at -0.1% and its 10-year bond yield around 0% during its two-day policy meeting that ended on Friday. Japan is a resource-poor country that relies almost entirely on fuel and gas imports. It is particularly vulnerable to the economic impact of global commodity inflation. The war-induced spike in energy prices is putting pressure on the world’s third-largest economy, which has likely seen growth stall in the current quarter as supply was disrupted and COVID-19 held back production and consumption. “Japan’s economy is picking up as a trend,” the BOJ said in a statement, looking more gloomy than in January, when it said the economy was showing “clearer signs of recovery”. The BOJ also removed from its statement the language in which it predicted a positive economic cycle, with rising corporate profits driving wages, capital expenditure and consumption. “The Japanese economy is still in the midst of recovering from the impact of the pandemic. What is important to us now is to support the recovery by maintaining an accommodative monetary policy,” Kuroda said. The BOJ warned of new risks from the crisis in Ukraine, which it said was destabilizing markets and driving up operating costs. “There is very high uncertainty about the impact developments in Ukraine could have on the Japanese economy and prices through markets, commodity prices and overseas economies,” the statement said. The BOJ is likely to assess the impact of the crisis in Ukraine more thoroughly at its next meeting in April, when it will release new quarterly forecasts for growth and inflation. Japan’s core consumer prices rose 0.6% in February from a year earlier, the fastest pace in two years, a sign of mounting inflationary pressures. Analysts expect consumer inflation to approach 2% from next month on the back of rising energy costs and the fading effect of cuts in mobile phone rates. But then inflation in Japan would still be well below 5.9% in the eurozone and 7.9% in the United States. Inflation is far from anchored in Japan, where wage growth remains modest and long-term inflation expectations have barely changed, Kuroda said. Some analysts doubt that households can tolerate further price increases if wages do not rise much. Highlighting the blow to households from rising fuel costs, energy and electricity bills both shot up about 20% from last year’s levels in February, the fastest pace since 1981. “As inflation and wage growth have lagged other countries, The BOJ has no choice but to patiently maintain the stimulus until Kuroda serves his term in April 2023,” said Hiroshi Shiraishi, senior economist at BNP Paribas (OTC:) Securities.

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