Roundup: BOJ extends inflation goal timeframe as consumer prices impacted by oil glut

Japan's central bank on Thursday extended its lofty 2 percent inflation timeframe from this fiscal year until the first half of fiscal 2016 as consumer prices have been impacted by the global oil glut and revised downwards from a 1 percent rise forecast in January.

The Bank of Japan (BOJ), however, took markets by surprise today by holding off on additional monetary easing, opting to maintain its expansion of the monetary base at an annual pace of 80 trillion yen (about 672 billion U.S. dollars), despite the latest economic figures showing that inflation here has effectively ground to a halt.

The bank said it now expects consumer prices to rise 0.8 percent from the previous year, from an earlier projection of 1 percent and the BOJ also trimmed its inflation projection for fiscal 2016, saying it expects consumer prices to rise 2 percent, down from a prior forecast of 2.2 percent.

While stating the economy is recovering moderately, owing to an uptick in exports and industrial production and aided by an improving job market and wages, BOJ Governor Haruhiko Kuroda stated in a press conference Thursday that restoring fiscal discipline was of paramount importance, but maintained, in contrast to some leading economists, that consumption is steady and inflation will improve. "It's very important to restore fiscal discipline. The government has said it will come up with a plan to achieve a primary balance surplus in fiscal 2020 and I strongly hope the government makes steady progress in improving Japan's fiscal health,"Kuroda said following the conclusion of the nine-member Policy Board's meeting, adding that "Consumption and domestic demand remains firm as a whole, as exports rise moderately. Japan' s economy is likely to see a positive cycle of income and expenditure kick off for both households and companies."

On the delay in the bank's inflation target, as widely predicted by analysts following the economic downturn triggered by last April's tax hike from 5 to 8 percent and the global oil glut, Kuroda said that despite the current pause, inflation was expected to rise henceforth and, as such, no further monetary easing was necessary. "It's true that the timing for achieving 2 percent inflation has been delayed somewhat to the first half of fiscal 2016 from a period centering around fiscal 2015. But trend inflation is improving steadily and is expected to continue improving. As such, I don't think there's a need to ease policy further now."

As per the BOJ chief's longstanding mantra, he added that the bank stood poised to expand its monetary easing policy, should needs dictate, but was confident the 2 percent inflation target would be achieved at the earliest possible juncture within the BOJ' s initial target of around two years. "There's no change to our stance that we won't hesitate to adjust policy on any signs of change in trend inflation,"Kuroda said. "We don't have any plans to change our commitment to achieve 2 percent inflation at the earliest date possible with a timeframe of around two years."

The BOJ's decision to stay pat on additional easing, coupled with the U.S. Commerce Department announcing that the world's largest economy grew between January and March at an annualized rate of just 0.2 percent, owing to sluggish exports and diminished consumer spending, well below median economists'expectations, sent markets here tumble to a four-month low, with the Nikkei stock index plummeting 2.69 percent and the Topix index closing down 2.13 percent.

Local analysts said that the market was expecting the bank to unveil fresh stimulus measures following inflation stalling and the U.S. economy showing signs of weakness. "Investors who were optimistic for additional easing are winding down their positions. Prices look like they're about to turn negative, so there's just cause for additional easing. The BOJ is insisting the foundation for prices is still strong. There' s a discord with reality,"noted Tsutomu Yamada, a market analyst at Kabu.com Securities Co.

But Kuroda remained optimistic about the health of the U.S. economy and the wider global economy in general, although intimated that the pace of some developing economies may be weighing on the general trend. "The global economy is in a recovery trend, though some emerging economies have seen growth slow. I think such factors may have had some effect. I don't think the rise in the dollar was the only reason behind the weak GDP. I think other one-off factors had played a significant part,"the central bank chief said. Endi