Later in the day, the BoJ downgraded its economic forecasts. The central bank said it doesn’t expect to hit its 2% inflation target until the start of 2017, and cut its growth outlook by 0.5 percentage points to 1.2%.
While markets responded calmly some commentators saw in the decision and the lowered economic forecasts reason for concern.
Russ Mould, investment director at AJ Bell, said: “Japan is the perfect example of what central banks in the West are frightened of – namely deflation and economic stagnation. Japan has suffered for 26 years since its debt-fuelled equity and property bubble popped and multiple QE programmes, foreign currency intervention, fiscal stimulus and zero-interest rates have all failed to kick-start the economy, inflation and the stock market on a sustainable basis. It looks like it is very hard to wean an economy (and investors) off money printing once you have started down that path.
Mould added: “As soon as stimulus has been withdrawn or policy even vaguely tightened, the economy, inflation and equity prices have all tended to roll over. Even allowing for how Japan’s government debts are far higher than those of the West, and its unhelpful demographics, the experiences of the Bank of Japan must be weighing on the mind of Mark Carney at the Bank of England as he mulls whether to increase interest rates in the UK in 2016.”
According to Yasunari Ueno, chief market economist at Mizuho Securities, BoJ governor Harukiko Kuroda could be criticised for the same failings that dogged his predecessor Masaaki Shirakawa. Ueno told the FT that the decision to hold policy “threatens a loss of credibility among overseas investors about the bank’s conduct of policy and exposes it to doubts that the 2% inflation target is now just empty words.”
The Nikkei closed up 0.75%, on the news.
