BoJ sets inflation target at 2 percent

TOKYO - Agence France-Presse

Japan’s Finance Minister Taro Aso (C) speaks to reporters with BoJ Governor Masaaki Shirakawa (L) and Economics Minister Akira Amari (R). EPA photo

Bowing to government pressure, Japan’s central bank Jan.22 pledged more aggressive action to boost the world’s third-largest economy, including setting a 2 percent inflation target.

The Bank of Japan also said it would conduct “open-ended” asset purchases - similar to the monetary easing strategy being followed by the U.S. Federal Reserve - to help achieve the goal of breaking out of a long spell of deflation.

Prime Minister Shinzo Abe had repeatedly urged the central bank to ease monetary policy further to help the recession-struck economy escape from years of falling prices.

Whether the effort will succeed remains to be seen: the central bank has not achieved even its 1 percent inflation target, with price increases hovering below 0.5 percent for the past two years despite surges in energy costs.

The higher inflation target “would also have to be backed up by substantial policy measures to achieve it; otherwise, the Bank of Japan might simply end up missing an inflation target of 2 percent rather than, at present, missing one of 1 percent,” Capital Economics said in a commentary yesterday.

Under the asset purchases plan, the central bank will buy about 13 trillion yen ($145 billion) in assets per month from January 2014 including Japanese government bonds and treasury bills. Its current asset purchase scheme will continue until the new plan comes into effect.

The government promised reforms to improve the competitiveness and “growth potential” of the economy, such as investing more in research and development and adjusting tax policies.

Growth forecast raise

The Bank of Japan on Jan.22 lifted its growth forecast for the country’s economy in the fiscal year starting in March, a glimmer of positive news as the country struggles to cement a recovery.

The BoJ said it now expected Japan’s gross domestic product to expand by 2.3 percent in the year ended March 2014, up from an earlier 1.6 percent forecast