Japan sets 2% inflation target; vows 'aggressive monetary easing'

22 January 2013 07:41  [Source: ICIS news]

SINGAPORE (ICIS)--Japan’s central bank plans to adopt a more “aggressive monetary easing” to boost economic activities, and has set a 2% inflation target for the world’s third biggest economy, which has been on a deflationary mode for decades.

“The Bank [central bank] recognizes that Japan's economy faces the critical challenge of overcoming deflation as early as possible and returning to the sustainable growth path with price stability,” the Bank of Japan (BOJ) said in an issued statement following its monetary policy meeting.

Seven out of the nine members of the BOJ’s monetary board voted in favour of setting the 2% inflation target, whereas the proposed open-ended financial assets purchasing program received a unanimous vote.

The newly set price stability target will be achieved through an aggressive monetary easing”, which include keeping a virtually zero interest rate policy and the open-ended purchasing of financial assets, the BOJ said.

Japan’s central bank has an existing asset purchase program – in which dates are set for the termination of the activity – to help flush funds into the financial markets.

“After completing the current purchasing method, from January 2014, the Bank will introduce a method of purchasing a certain amount of financial assets every month without setting any termination date,” it said.

The total size of the asset purchase program will be increased by about yen (Y) 10,000bn ($111.4bn) in 2014 and is expected to be maintained at that level.

Japan's economy remains relatively weak,” the BOJ said, citing declines in exports and industrial production, in line with the deceleration of growth in overseas economies.

For the fiscal year 2012, Japan’s GDP is expected to grow by 0.9-1.1%, with the consumer price index falling by 0.2-0.1%, according to forecasts of the majority of Japan’s monetary board members.

For 2013, the BOJ is projecting a 1.8 -2.5% real GDP growth with inflation at 0.1-0.7%. In the following year, the economy is projected to grow by 0.2-1.3% with the inflation forecast at 2.4-3.0%.

($1 = Y89.74)

By: Pearl Bantillo
+65 6780 4359

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