UPDATE: 2:50 a.m. EDT -- Hours after holding back on additional stimulus measures, the Bank of Japan (BoJ) slashed the country’s growth outlook and pushed back the deadline to achieve its target of 2 percent inflation.
The bank now projects GDP to grow at 1.2 percent this fiscal year, down from an earlier forecast of 1.7 percent.
“Comparing the current projections with the previous ones, the projected growth rate for fiscal 2015 is lower due to the flattening of exports against the background of the slowdown in emerging economies,” the BoJ said, in the statement.
Additionally, the bank now expects to meet the inflation target by “around the second half of fiscal 2016,” which ends in March 2017, BoJ said, in a statement.
The Bank of Japan (BoJ) Friday kept its monetary policy unchanged, preferring to hold off on expanding its massive stimulus program despite growing signs that slumping energy costs, weak exports and a fragile recovery in household spending will keep inflation short of its 2 percent target.
Following the announcement, the Nikkei 225 index dropped sharply, before paring its losses and trading up nearly 1.3 percent. In a brief statement released after its policy meeting, the BoJ said the board voted 8-1 to continue expanding the monetary base through the purchase of government bonds, at an annual rate of 80 trillion yen ($662 billion).
The move to keep the monetary policy unchanged comes just days after the U.S. Federal Reserve indicated that a rate hike later this year was still possible if global economic risks -- triggered by a slowdown in the Chinese economy -- subside. Earlier this month, in a widely expected move, the Japanese central bank held off on expanding its stimulus package, citing a moderate recovery in the country’s economy.
However, recession fears continue to worry investors. Japan’s economy contracted in the April-June quarter and may shrink again in the July-September period due to weak exports, as demand in China cools. Last month, Japanese exports to China shrunk for the second straight month, falling 3.5 percent from a year earlier, after a 4.6 percent year-on-year decline in August.
The weak economic indicators have led many to question whether the BoJ inflation target of 2 percent by the middle of next year is achievable.
“It’s wrong to think pressure is off from the BOJ,” Kazuhiko Ogata, an economist at Credit Agricole SA, told Bloomberg before the decision. “The economy isn’t strong and 2 percent inflation is far, far away. The BOJ will keep examining whether it should ease more.”