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Japan's Central Bank Sets 2 Percent Inflation Target

Jan. 22, 2013
japanese yen

The Bank of Japan decided Tuesday to set a target of 2-per-cent inflation in an effort to inject new life into the world's third-largest economy.

The target was requested by Prime Minister Shinzo Abe, who was inaugurated in late December. The premier wanted the central bank to do more to counter deflation that has plagued Japan for more than a decade.

Under the new goal, the bank "will pursue monetary easing and aim to achieve this target at the earliest possible time," it said in a statement.

Two members of the Bank of Japan's 9-member policy board were opposed to setting the target, the bank said.

Before the December election, Shinzo Abe, the leader of the Liberal Democratic Party (LDP), pledged to work on economic stimulus and called for "unlimited" monetary easing by the Bank of Japan to prop up the economy.

The LDP won an overwhelming victory in the election and returned to power more than three years after its crushing defeat in the 2009 race.

The falling prices have hurt corporate earnings and caused consumers to put off purchases in the hope of further price drops.

In February, the bank decided to set its price stability goal, aiming to stimulate a 1-per-cent increase in the index, to combat deflation.

On Tuesday, the bank lowered its forecast for the nation's consumer price index for this financial year to minus 0.2 per cent from the previous year after predicting minus 0.1 per cent in October.

The bank expected the consumer price index would climb 0.4 per cent for the next financial year, unchanged from October. It had forecast 0.7-per-cent growth six months ago.

The government said last month that the index declined 0.1 per cent in November from a year earlier.

These rates were far short of the bank's previous target of 1.0-per-cent inflation.

The central bank downgraded Japan's economic growth forecast for the current financial year to 1.0 per cent from the 1.5 per cent it had projected three months ago.

The bank raised the growth outlook for the next financial year through March 2014 to 2.3 per cent from 1.6 per cent it had estimated in July.

The bank also decided to adopt "open-ended" monetary easing measures to inject more money into the financial markets.

In December, the bank decided to take additional monetary easing steps by expanding an asset-purchase programme to about 101 trillion yen (1.13 trillion dollars) from 91 trillion yen.

Japan is in recession as it struggles with falling exports, the yen's strength, the eurozone debt crisis and tensions with China, the nation's largest trading partner.

The bank voted unanimously to hold its key interest rate at zero to 0.1 per cent as widely expected.

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Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

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