The Japanese central bank, Bank of Japan kept its monetary policy unchanged on Thursday and upgraded its GDP growth projection.
The BOJ announced at the end of its monthly two-day meeting the decision of improving its perspective for this fiscal year -ending on March 31, 2018- over its last estimate that was 1.5 percent. The BoJ has been widely expected to further dial back their inflation less fresh food forecast from their current 1.5% YoY figure for 2017.
The BOJ upgraded its view of the economy, describing it as headed toward an "expansion", its first use of that word in almost a decade.
In line with market expectations, the BOJ maintained its short-term interest rate target at minus 0.1 percent and committed to keeping the 10-year government debt yield at around zero percent. Several BOJ policymakers, including deputy governor Kikuo Iwata, have said the bank is conducting internal studies on how it could eventually withdraw stimulus, though they add an actual exit would be some time away. "That's because an appropriate exit strategy would vary depending on economic, price and financial situations at the time".
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However, the central bank's outlook statement confirmed that the current regime of policy solutions will continue to be appropriate "with a view to maintaining the momentum toward achieving the price stability target".
"In fiscal 2019, the economy is expected to continue expanding, although the growth pace is projected to decelerate due to a cyclical slowdown in business fixed investment and the effects of the scheduled consumption tax hike". It also comes as the US Federal Reserve is increasing interest rates and European Central Bank officials, who meet later Thursday, have started discussing the stimulus program taper.
In its outlook report, the BOJ cited "geopolitical risks" as one of the downside risks to the economy, along with political confusion in Europe following Britain's vote previous year to leave the European Union. After three years of heavy money printing failed to drive up inflation, the BOJ revamped its policy framework last September to one better suited for a long-term war against deflation.
Even if inflation picks up more rapidly than anticipated, the Bank has pledged to allow inflation to overshoot the 2% target for a while, Thieliant pointed out. "If so, it's natural to believe that this will lead to an improvement in the output gap, tighten labour market conditions, thereby pushing up wages and inflation".