Battle weary

21 January 2015 By Andy Mukherjee

The Bank of Japan has cast doubt on its inflation goal by slashing forecasts. Its Swiss counterpart’s u-turn has devalued central bank promises. To regain authority the BOJ will have to fire more bullets from a depleting arsenal. It will be heavy going if cheap oil damps wages.

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The Bank of Japan cut its forecast for core inflation for the financial year ending in March 2016 to 1 percent, from a previous estimate of 1.7 percent. The forecast for consumer prices minus fresh food excludes the effects of last April’s sales tax increase.

For the year that will end in March 2017, the BOJ raised its core inflation forecast to 2.2 percent, from 2.1 percent previously.

At its Jan. 21 monetary policy meeting, the BOJ decided to keep monetary policy steady but extended a programme for cheap financing of bank loans by one year and increased its size to 10 trillion yen ($85 billion) from 7 trillion yen.

The yield on five-year Japanese government bonds fell 1.5 basis points to minus 0.005 percent on Jan. 20. The yield turned negative for the first time as the Bank of Japan’s massive bond-buying programme left few bonds available for investors.

The BOJ’s holdings of Japanese government securities have risen to 255 trillion yen, from 181 trillion yen at the end of 2013.

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