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Markets

Bank of Japan lifts growth forecast, keeps policy unchanged

  • "With the slow vaccine rollout set to gather pace over the coming months, activity should start to recover again before long, lowering the need for additional stimulus," he added in a note.
27 Apr 2021

TOKYO: Japan's central bank on Tuesday raised its growth forecasts for the world's third-largest economy, citing expected stronger demand, and left its ultra-loose monetary policy in place.

But it acknowledged that the outlook remains "highly unclear" and could change depending on how the still-raging coronavirus pandemic evolves and affects the domestic and international economy.

Still, it revised up its forecast for the 2020-2021 fiscal year that ended on March 31, projecting the economy would shrink 4.9 percent, compared with the 5.6 percent contraction it predicted in January.

For the current fiscal year, it now expects 4.0 percent growth, against its January forecast of 3.9 percent, while it lifted its expectations for the fiscal year ending in March 2023 to 2.4 percent, from 1.8 percent previously.

"The projected growth rates are higher, mainly for fiscal 2022, on the back of stronger domestic and external demand," the Bank of Japan explained.

It said while Japan's economic activity was expected to stay lower than pre-pandemic levels "for the time being", it expects to see the virus's impact "waning gradually".

But the picture was not all positive, with the bank forced to once again revise down its inflation forecasts, putting the long-held two percent goal even further from reach.

The BoJ has consistently fallen short of hitting the target it considers key to turbocharging the stuttering economy, despite a barrage of stimulus and monetary easing packages.

The new forecasts project inflation of just 0.1 percent for the fiscal year ending in March 2022, down from a previous outlook of 0.5 percent.

The bank sees that rising to 0.8 percent for the year ending March 2023, and only hitting 1.0 percent in the year ending March 2024. The bank said it would continue its existing monetary policy "as long as it is necessary" to achieve the two percent goal.

And, repeating the language of previous decisions, it said it would "not hesitate to take additional easing measures if necessary", adding that it expects short- and long-term policy interest rates to remain at current or lower levels.

"The Bank of Japan kept policy settings unchanged today and by predicting that inflation will remain well below its two percent target by FY2023 signalled a prolonged period of inaction," said Marcel Thieliant, senior Japan economist at Capital Economics.

"With the slow vaccine rollout set to gather pace over the coming months, activity should start to recover again before long, lowering the need for additional stimulus," he added in a note.

Parts of Japan, including economic powerhouses Tokyo and Osaka, are currently under a third virus state of emergency that includes the closure of shopping malls as well as restaurants and bars serving alcohol.

The country began vaccinations in February, but has only so far approved the Pfizer formula and is inoculating medical workers and the elderly.