TOKYO — The Bank of Japan (BOJ) yesterday acknowledged that it will fail to achieve its 2 per cent inflation goal during Governor Haruhiko Kuroda’s term which ends in April 2018, a major setback to Prime Minister Shinzo Abe’s “Abenomics” policy mix designed to beat prolonged deflation in the world’s third-largest economy.

The central bank decided by a 7-2 majority vote, however, to leave its monetary policy unchanged, maintaining its negative 0.1 per cent short-term interest rate target and a pledge to guide 10-year government bond yields to around zero per cent.

The BOJ also kept a pledge to buy bonds at the current pace so its holdings rise at an annual pace of ¥80 trillion (S$1.06 trillion), even though this is no longer an official target. Mr Kuroda reiterated that Japan’s economic situation is little changed from late September when the last policy board meeting was held. The yen eased slightly, falling 0.2 per cent to 104.95 to the US dollar late yesterday in Tokyo, while the Nikkei-225 stock average rose 0.1 per cent to close at 17,442.40.

The BOJ’s drastic monetary easing is one of the three pillars of Abenomics, along with fiscal expansion and structural reforms. Mr Abe and Mr Kuroda have pledged to work together to revive Japan’s sagging economy by wiping out the negative effects of falling prices, such as lower corporate profits and household spending.

The BOJ, which had already pushed back the timeframe for attaining its inflation goal four times since Mr Kuroda took office in 2013, extended it again to sometime in or after fiscal 2018, which ends in March 2019, from sometime in fiscal 2017. Mr Kuroda, a former chief currency diplomat of Japan, was appointed as BOJ governor by Mr Abe.

“It is regrettable that we were not able to realise 2 per cent inflation within two years,” said Mr Kuroda at a press conference after a two-day policy board meeting that began on Monday. Warning against downside risks to prices, he added: “The BOJ will make policy adjustments as appropriate to maintain the momentum towards achieving the price stability target.”

Many analysts now expect the central bank to stand pat unless financial market turbulence equivalent to the 2008 global financial crisis erupts.

“The BOJ no longer makes a commitment to when it will attain (the inflation goal)”, said Mr Junichi Makino, chief economist at SMBC Nikko Securities, adding the bank is unlikely to carry out further monetary easing at least “within one year.”

In its quarterly outlook report released yesterday, the BOJ also downgraded its inflation outlook for fiscal 2016 through fiscal 2018. The bank said it expects the core consumer price index to rise 1.5 per cent in fiscal 2017, revised downward from a 1.7 per cent increase projected in July, and forecast it will climb 1.7 per cent in fiscal 2018, down from the earlier estimated 1.9 per cent. “On the price front, the momentum towards achieving the price stability target of 2 per cent seems to be maintained, but is somewhat weaker than the previous outlook, and thus developments in prices warrant careful attention going forward,” the BOJ said in the report.

The central bank is far from attaining the inflation goal as Japan’s core consumer price index, excluding volatile fresh food prices, fell for the seventh straight month in September — by 0.5 per cent from a year earlier.

At its last policy board meeting, the BOJ decided to shift its policy target to government-bond yield curves instead of quantitative easing, aiming to prepare for a long-term battle to reach its inflation target. Since then, the BOJ has modified the framework of its bond-buying programme to keep the yield of the bellwether 10-year Japanese government debt near zero, while leaving unchanged the negative interest rate of minus 0.1 per cent on a portion of reserve funds held by commercial banks at the BOJ. AGENCIES