BoJ projects inflation exceeding 2% in next two years

The Bank of Japan projected for the first time today that inflation two years down the line would be roughly 2 per cent.

BoJ governor Haruhiko Kuroda said he saw no delay in the timing for meeting the bank's inflation target as he maintained his optimism on the outlook. 

The governor of the central bank noted that the a sales tax increase had had a limited economic impact so far.

However, he added, the BOJ was ready to expand stimulus further if risks jeopardised achievement of the price target.

"The slump after the April tax hike is within expectations and so far, household spending is sustaining momentum," Kuroda told a news conference after a BOJ policy meeting.

"As a whole, we're making steady progress. But we're still halfway through meeting the target, so we'll closely monitor the situation and make adjustments when necessary," he said.

As had been expected, the BoJ earlier continued with its stance on increase of base money, its key policy gauge, at an annual pace of 60 trillion to 70 trillion yen ($588-$686 billion).

In its latest projections published in a twice-yearly report, the BOJ said consumer inflation would likely hit 2 per cent around the next fiscal year beginning in April 2015, and be sustained in a "stable manner" as the economic recovery continued.

However, analysts seem to be less optimistic about the price outlook, with most forecasting that additional monetary would be needed in coming months.

Bloomberg quoted Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co as saying, July would be key for the BOJ to judge if additional stimulus is needed.

He added, it was possible the sales tax would be a drag for a prolonged period as wage growth was not catching up with inflation.

The Nikkei 225 Stock Average had been the worst performer among major global stock markets this year, pointing to falling expectations for Abe's economic policies.

In January, the central bank estimated 1.3 per cent inflation in the current fiscal year, which started April, and 1.9 per cent for fiscal 2015. The projections are the median estimates of the nine board members and did not take into account sales-tax increases.

The central bank chief unveiled the unprecedented easing campaign in April last year.

Wages excluding overtime pay and bonuses were down for the 22nd straight month in March, dropping 0.4 per cent from a year earlier.