TOKYO (AP) — The Bank of Japan opted to keep its ultra-loose monetary regime intact Tuesday, but cut its outlook for inflation, saying that growth is not yet doing enough to push wages higher or fire up consumer demand.
In this fiscal year, ending next March, the central bank expects the economy to expand at a 1.9 percent pace, up slightly from its July forecast. But it expects growth to slow to 1.4 percent in the coming year and to half that pace in fiscal 2019.
The BOJ trimmed its inflation forecast for the current fiscal year, which ends next March, to 0.8 percent from an earlier forecast of 1.1 percent.
The latest economic data underscored the challenge the central bank faces in trying to attain its 2 percent inflation target.
The government reported that industrial output fell 1.1 percent in September from the month before as manufacturers reduced production of electronic components.
Unemployment was steady at 2.8 percent, the Ministry of Internal Affairs and Communications said.
It said labor shortages were deepening, with 152 jobs available for every 100 applicants — the highest level since 1974.
Household spending fell by an average of 0.3 percent in September from a year earlier, the ministry reported, despite a 2.1 percent increase in average incomes.
In its assessment of the economic outlook, the Bank of Japan pointed to a reluctance among companies to raise wages, and among consumers to spend, as a key reason for the slow progress toward higher inflation.
Meanwhile, housing investment, a key source of consumer demand, has remained more or less flat, the bank’s report said.
Under Prime Minister Shinzo Abe, the central bank has fought a long spell of deflation with massive purchases of government assets, injecting trillions of dollars into the economy in an effort to spur price increases.
But companies have raised wages and prices less than expected, slowing that process.
While the U.S. Federal Reserve moves toward its third interest rate hike and the European Central Bank begins to cut back on its asset purchases, Japan’s central bank remains committed to stimulus for the time being, with its key policy rate at minus 0.1 percent.
“For our part, we expect growth to slow more sharply than the (central) Bank currently anticipates and we expect price pressures to strengthen only gradually,” Marcel Thieliant of Capital Economics said in a commentary. “The upshot is that we don’t expect the Bank to tighten policy anytime soon.”
