Bank of Japan keeps benchmark interest rate unchanged

Robyn Valdez
April 28, 2017

It also raised its estimate of growth for 2018, from 1.1 to 1.3 percent and published its first forecast for fiscal year 2019, of 0.7 percent. "Global economic prospects have brightened but the BOJ would be cautious of giving out any signs it may withdraw its stimulus as doing so could trigger an unwelcome yen rise", said Mari Iwashita, chief market economist at SMBC Friend Securities.

But it warned of risks to that scenario from global trends, including USA economic policies, Britain's exit from the European Union and other geopolitical trends. "The divergence between their price outlook and that of private economists continues, but it shouldn't be a big problem for now because it's been that way for a long time and few economists believe the BOJ's projections".

Most analysts polled by Reuters expect the BOJ's next move to be a tightening of monetary policy, though many do not expect it to happen until next year at the earliest.

But its core consumer inflation forecast for the year ending in March 2018 was lowered to 1.4 percent from 1.5 percent, owing to weak services and durable goods prices, the BOJ said in its quarterly economic outlook report.

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But BOJ Governor Haruhiko Kuroda is likely to remind markets that the Japanese central bank is nowhere near an exit from its massive monetary stimulus, with inflation hovering well below the bank's ambitious 2 percent target.

"On the price front, the momentum toward achieving the price stability target of two percent is maintained, but is not yet sufficiently firm, and thus developments in prices continue to warrant careful attention", it added.

Treasury bonds remained positive even as the outline raised the risk of bigger deficits and United States stocks slipped.

The bank says it will purchase such bonds more or less in line with its current annual pace, for a total of about 80 trillion yen, or about 720 billion dollars.

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During a news conference held later in the day, Kuroda said the bank will keep a close watch on geopolitical risks. Talking about a specific exit strategy now would cause undue confusion in markets.

In a widely expected move, the BOJ maintained the 0.1 percent interest it charges on a portion of excess reserves that financial institutions park at the central bank.

But central bank policymakers still have little to cheer about with consumer inflation barely above zero percent, as soft household spending discourages companies from raising prices.

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