Bank of Japan maintains steady policy

Bank of Japan keeps stimulus programme steady, giving upbeat economic projections

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The Bank of Japan decided to maintain its massive stimulus programme and its upbeat assessment of the economy on Friday, signalling its conviction that growth will strengthen enough to accelerate inflation to its 2 percent target without more monetary easing.

Markets are focusing on what Governor Haruhiko Kuroda will say in his post-meeting briefing on the merit and downside of a weak yen, which is becoming a politically sensitive issue.

With business sentiment improving and capital expenditure picking up, the BOJ maintained its rosy assessment that the economy is continuing to recover.

As widely expected, the central bank also kept intact its pledge to increase base money at an annual pace of 80 trillion yen ($650 billion) through aggressive asset purchases. The decision was made by an 8-1 vote.

"Exports are picking up and capital expenditure is rising moderately as a trend as corporate revenues improve," the BOJ said in a statement.

It also revised up its assessment on housing investment to say it "appeared to be picking up." Last month, it said housing investment was bottoming out with some signs of a pick-up.

Japan's economy has emerged from last year's recession as consumers recovered from the pain from a sales tax hike and capital expenditure grew.

Growth is seen slowing to 1.3 percent in April-June from an annualised 3.9 percent expansion in the first quarter, according to a Reuters poll.

Markets expect the BOJ to ease interest rates again in October, though some investors have pushed back their forecasts for more action after the stronger-than-expected first-quarter growth figure.

Some analysts say the BOJ may become more hesitant to ease for fear of weakening the yen further and drawing criticism from lawmakers already fretting about the downside of a weaker yen.

Kuroda triggered a yen spike last week when he told parliament that the yen's real, effective exchange rate was already "very low."

Analysts say Kuroda may be mindful of concerns voiced by lawmakers such as Tomomi Inada, a ruling party policy head who said policymakers must be mindful of the pain a weak yen inflicts on households via higher import costs.

The BOJ also said it will reduce the number of its policy-setting meetings from 2016 but issue more frequently a report on its long-term economic and price projections, a move in line with a trend among major central banks.