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Will The Bank of Japan Pull A Rabbit Out Of The Hat

By:
Barry Norman
Updated: Aug 25, 2015, 07:00 UTC

The Japanese yen soared to 109.40 as traders wait for the Bank of Japan press conference due in about 2 hours from now. Kicking off Friday’s trading Japan

Will The Bank of Japan Pull A Rabbit Out Of The Hat
Will The Bank of Japan Pulls A Rabbit Out Of The Hat
Will The Bank of Japan Pulls A Rabbit Out Of The Hat

The Japanese yen soared to 109.40 as traders wait for the Bank of Japan press conference due in about 2 hours from now. Kicking off Friday’s trading Japan release several economic reports including dismal inflation data.  Japan’s inflation slowed to its lowest pace in half a year, underlining the challenge to central bank chief Haruhiko Kuroda’s efforts to reflate the world’s third-biggest economy. Consumer prices excluding fresh food increased 3.0 percent in September from a year earlier, the statistics bureau said today in Tokyo, in line with a median projection in a Bloomberg News survey of economists. Stripped of the effect of April’s sales-tax increase, core inflation — the Bank of Japan’s key measure — was 1.0 percent.

Japan and the BoJ are in trouble after BoJ and Prime Minister Abe both promised to reach the 2% inflation target just a few months from now and that goal now looks almost impossible. Weak price gains are a blow to Kuroda, who is targeting 2 percent inflation and said in July there was no possibility that the bank’s price gauge would fall below 1 percent. The BOJ is forecast to maintain its unprecedented easing today, even as oil prices decline and the board considers moderating language on the consumer price outlook.

There is almost no way the central bank can hit the two-year, 2 percent inflation target Kuroda set when he unleashed unprecedented monetary stimulus in April 2013. Economists think it is unlikely to even get close in the foreseeable future. Kuroda has been relentlessly optimistic even as the economy, hit by a sales tax hike in April, flirts with recession and falling oil prices threaten to pull inflation below 1 percent.

People close to Kuroda say his conviction the BOJ can meet its inflation target is genuine and not just aimed at boosting sentiment, and that the governor still sees the next policy move as an exit instead of a further expansion of stimulus. Today’s statement will be crucial and traders are undecided as to what to expect and which way is best. But the fact remains that Japan is not recovering at the pace promised by Prime Minister Abe’s abenomics and the Bank of Japan will be the scapegoat.

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Abe and the central bank have sought to spur inflation as a way of encouraging consumers and businesses to spend more and thus support faster growth. But a sales tax hike in April, from 5 percent to 8 percent, slowed the recovery that began in late 2012. Abe is due to decide before year-end on whether to raise the sales tax another 2 percentage points to 10 percent next year. The tax increases are needed to help counter Japan’s huge public debt, but the hike is opposed by a majority of the public.

BOJ Gov. Haruhiko Kuroda has insisted that the central bank’s massive asset purchases are having their intended effect. But he may be getting closer to conceding that the policy has not generated as much inflation as intended.

AP Business summarized it by saying that – It takes two to tango,” it said, forecasting that the central bank will likely hold off on further stimulus, while watching to see if Abe pushes ahead with the tax hike.

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