TOKYO (Reuters) - Japan’s central bank kept policy unchanged on Friday but ditched a timeframe it had set for hitting its inflation target, in a surprise move analysts say is aimed at keeping market expectations for more stimulus in check.
Bank of Japan Governor Haruhiko Kuroda warned of downside risks clouding the price outlook, such as companies’ reluctance to raise wages, underscoring the challenge of eradicating the public’s sticky deflationary mindset.
Economists say the waning conviction policymakers have about their ability to drive consumer prices is behind the BOJ’s decision to remove references to the period in which inflation was projected to hit its elusive 2 percent target.
“While there’s no change to our commitment to achieve our price goal at the earliest date possible, there’s considerable uncertainty on the outlook,” Kuroda told a news conference.
He conceded public perceptions on future price moves weren’t changing as much as he had hoped for, saying that medium- and long-term inflation expectations among businesses and households weren’t picking up.
Kuroda noted the omission of a target timeframe was aimed at preventing markets from betting on additional easing each time the BOJ pushed back the timing for hitting its price goal.
Economists say the move is designed to create a better framework for the central bank to communicate with markets.
“By dropping the timeframe, the BOJ can avoid facing pressure for further easing if the timing is delayed again. It can also prevent market players from linking the timing of hitting the target with an exit strategy from easy policy,” said Noriatsu Tanji, chief bond strategist at Mizuho Securities.
“In that sense, you may say the BOJ can have more policy flexibility without the timeframe but that doesn’t mean it has given up on the price target altogether.”
As widely expected, the BOJ maintained a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year bond yield around zero percent by a 8-1 vote.
New deputy governor Masazumi Wakatabe, an advocate of huge money printing, voted with the majority, defying some market speculation he could propose topping up stimulus.
The removal of the timeframe comes on the fifth anniversary of Kuroda’s first appointment as governor. He was recently reappointed for another five-year term.
In 2013, he deployed a massive asset-buying programme to break Japan out of deflation and accelerate inflation to his 2 percent goal.
Back then, Kuroda pledged to hit his goal in two years. He later watered down the timeframe. Removing it altogether signals a departure from the BOJ’s approach of shocking the public out of deflation with a huge blow of stimulus.
In a quarterly review of its projections, the BOJ left its inflation forecast for next fiscal year unchanged from three months ago, at 1.8 percent.
It also projected inflation of 1.8 percent for the following fiscal year, underscoring its view a strengthening recovery will sustain price growth toward its 2 percent target.
Kuroda said the omission of the timeframe did not signal a future change in monetary policy, or mean the BOJ had changed its price target to a longer-term goal.
Analysts say the BOJ has made clear it will guide policy based more on how the economy is performing, rather than how quickly inflation is moving toward an elusive target.
“The BOJ has become more realistic in its communication to become more credible,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management.
“The board has shifted the balance between sending a strong message to influence inflation expectations and sending a realistic message about prices.”
The central bank had been forced to push back the timeframe six times due to subdued inflation. Analysts have criticised as too optimistic the bank’s latest projection made in January that the price goal will be achieved during fiscal 2019.
The BOJ’s approach to policy communication came into the spotlight late last year, after a series of what the market interpreted as conflicting messages by its central bankers that rattled financial markets.
Additional reporting by Tetsushi Kajimoto, Minami Funakoshi and Kaori Kaneko; Editing by Sam Holmes