BOJ Cuts Price Forecast, Leaves Key Policy Unchanged

        TOKYO--The Bank of Japan cut its near-term inflation outlook Wednesday, but left its key easing policy unchanged, citing brighter economic growth that could eventually help put prices back on a firm upward path.
        A continued slide in oil prices is making it even more difficult for the central bank to achieve its 2% inflation target anytime soon, but the absence of extra easing measures suggests the BOJ remains optimistic that underlying inflation remains in place and the economy could grow faster down the line.
        In updated price and growth projections for the next two years, the central bank cut its median forecast for the average rise in the consumer price index in the year starting April 2015 to 1.0%, from 1.7% previously.
        The sharper-than-expected cut, the second in a row, is still fairly bullish considering the recent drop in the inflation rate to well below 1%. With energy prices falling more than 50% from last year's peak, private economists expect the inflation rate to fall back into negative territory later this year.
        Reflecting the ongoing falls in the consumer price index, the BOJ tweaked its current view to say "the on-year increase in CPI, excluding the direct effects of the consumption tax increase, is in the range of 0.5% to 1.0%."
        Looking ahead, the central bank said inflation was likely to slow for the time being "reflecting the decline in energy prices."
        Until last month, the BOJ had said inflation was around l% and would likely stay around that level for the time being.
        The central bank revised up its price forecast for the following year, a sign of confidence that cheaper energy costs will provide a major lift to firms and households, stimulating their spending and leading to a rise in prices.
        The latest median CPI forecast for the year starting April 2016 is 2.2%, from the previous 2.1%.
        The economy is likely to get a major boost through multiple channels in the coming years, fueled by a Y3.5 trillion in government extra spending package, cheaper energy costs, while a delay in a further sales tax increase until April 2017 will keep a potential negative factor for the economy at bay.
        The BOJ sharply raised its view on growth adjusted for inflation, expecting gross domestic product to rise 2.1% in fiscal 2015 and 1.6% the following year. But it cut its forecast for the year ending in March to a 0.5% contraction from the previous 0.5% expansion.
        As has been expected, the BOJ also extended a program to spur bank lending by one year. The program was due to expire in March. It also raised the limit of outstanding loans under the program to Y10 trillion from Y7 trillion, while doubling the maximum amount of funds it can offer to each institution under a separate growth program.
        In the statement after a two-day policy setting meeting, the BOJ stuck to its generally optimistic language that Japan's economy "continues to recover moderately as a trend." It raised its view on industrial output.
        As widely expected by private economists, the BOJ's nine-member board voted 8-1 to leave unchanged the amount of its annual asset purchases at Y80 trillion. Board member Takahide Kiuchi again proposed the target be reduced to the previous Y60 trillion to Y70 trillion, a proposal that was voted down 8-1.
        BOJ Gov. Haruhiko Kuroda will explain the policy decision and the updated projections on the economy at a news conference from 0630 GMT.
        -Yasuyo Sato contributed to this article.
        Write to Tatsuo Ito at tatsuo.ito@wsj.com and Takashi Nakamichi at takashi.nakamichi@wsj.com
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        (END) Dow Jones Newswires

        January 20, 2015 23:10 ET (04:10 GMT)

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