Bank of Japan holds course on stimulus expansion
TOKYO, Japan
THE Bank of Japan yesterday held fire on expanding its vast stimulus programme, saying the world’s number three economy was recovering despite taking a hit from April’s sales tax rise.
However, policymakers slightly lowered the economic growth forecast for the current fiscal year following a two-day meeting, and many economists are betting the central bank will have to unleash further measures before the end of 2014 to counter a slowdown.
“The decline in consumer demand after the tax hike was largely within our expectations,” BoJ governor Haruhiko Kuroda told reporters.
“The impact is gradually moderating… and our view is that the Japanese economy has continued to recover,” he added.
The yen hardly moved on the BoJ’s earlier announcement, with the dollar fetching 101.53 yen in late afternoon trading against 101.54 yen in New York Monday afternoon.
Many economists still believe the BoJ will expand its monetary base this year.
“It came as no surprise that the BoJ left policy settings unchanged today and presented upbeat inflation forecasts, but we still think more easing will be announced in October,” said Marcel Thieliant from Capital Economics.
The median prediction for economic growth presented by board members was virtually unchanged and core inflation forecasts were broadly in line with the BoJ’s 2.0-per cent inflation target both in fiscal 2015 and 2016, he noted.
The bank slightly lowered its growth forecast for the current fiscal year to March to one per cent from a previous 1.1 per cent forecast. But it had been predicting growth of 1.5 per cent in late 2013.
Thieliant said the BoJ’s generally upbeat view “may assume an extension” of the current stimulus package, which was launched in April last year as part of Prime Minister Shinzo Abe’s bid to kick-start the economy.
“It should not be surprising that policymakers express confidence in their own strategy. What’s more, recent comments by governor Kuroda revealed that the central bank is only ‘half way there'” in beating years of deflation, Thieliant said.
“The upshot is that further policy easing is still likely to be required, and we expect an extension… into 2015 to be announced at the late-October meeting.”
Credit Suisse mirrored those predictions, saying in a research note: “We maintain our view that the bank will be forced to downgrade its economic and inflation forecast by October and we continue to expect the policy board to decide on additional easing during the October-December quarter.”
The BoJ’s April-June Tankan survey showed Japanese business confidence sagged for the first time in six quarters owing to the April 1 sales tax increase, which is hitting consumer demand.
The economy had been on the upswing as Abe’s growth blitz, dubbed Abenomics, helped sharply to weaken the yen, giving a lift to exporters’ profitability and driving a stock market rally last year.
But the tax rise — seen as crucial to taming Japan’s massive national debt — threatened to derail those plans and stoked speculation the BoJ would be forced to act.