(MENAFN- Gulf Times) Disappointingly weak consumer spending will keep Bank of Japan policymakers on their toes as they meet today, two years into a massive stimulus programme which has yet to convincingly pull the economy out of decades of stagnation.
The central bank will likely continue the asset-buying spree it launched in 2013 at a two-day rate review ending today, while laying the groundwork for a more critical meeting on April 30 that will produce new long-term forecasts.
But the nine-member board will start debating how to reconcile its bullish economic and inflation forecasts with renewed signs of weakness in the economy.
Given feeble wage growth and sluggish household spending, the BoJ may cut its 1% core consumer inflation forecast for the current fiscal year to March 2016 at the April 30 review, say sources familiar with the bank's thinking.
Depending on how deep the cut will be, the BoJ may ease policy again or modify its pledge of hitting 2% inflation "at or around fiscal 2015" - or both, some analysts say. First-quarter GDP figures will be pretty gloomy," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. "The chances of near-term BOJ action, including in April, has heightened compared with a month ago," he said.
As slumping oil prices push inflation further away from its target, many market players expect the BoJ to ease sometime this year, likely by ramping up purchases of government bonds and riskier assets, but those expecting action in April are a minority.
In deploying its massive stimulus in April 2013, the BoJ pledged to achieve 2% inflation in roughly two years in a country mired in 15 years of deflation.
But inflation has ground to a halt amid falling oil prices and an unexpected recession caused by a sales tax hike last year, forcing the BoJ to expand stimulus last October and water down its two-year timeframe.
It now says Japan will hit 2% inflation around the current fiscal year. But even that deadline is proving elusive as prices are seen staying flat or falling for much of this year on low energy costs and tame wage growth. The BoJ has said it will look through the effect of oil and stand pat as long as a broad uptrend in prices, backed by an economic recovery, is intact.
But recent data has raised concern over the strength of the recovery. Household spending slumped in February and output slid on weak car sales. Big firms raised base pay in wage talks with labour unions, but the average increase was smaller than what the BoJ had hoped for. The BoJ is putting on a brave face so far, and is likely to maintain today that the economy will continue recovering and inflation will accelerate toward 2% early next year. Markets are focusing on how Kuroda, at his post-meeting briefing, will defend the stimulus, as well as for any clues on whether and when the BoJ might expand its asset purchases, which are already so large that they have started to create distortions in the government bond market.
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