The Bank of Japan (BOJ) yesterday held off expanding its monetary easing campaign and said the world’s No. 3 economy was picking up pace, despite fears that a sales tax rise will dent consumer spending.
Japanese policymakers dropped the word “deflation” from their post-meeting statement after unanimously agreeing to keep the central bank’s stimulus program unchanged following a two-day meeting — a possible signal that efforts to conquer years of falling prices could be paying off.
The bank said its moves to boost laggard growth were taking hold, with Japan’s economy “expected to continue a moderate recovery.”
Photo: Bloomberg
“Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects and the bank will continue with the QQE... as long as it is necessary” to reach stable inflation, the bank said.
The unprecedented program announced last year, similar to the US Federal Reserve’s asset-buying plan, is aimed at stimulating growth by injecting massive amounts of money into the financial system and trying to reach a 2 percent inflation target by next year.
“The optimistic tone of recent BOJ communication suggests that the chances of additional stimulus being announced as soon as July have shrunk substantially, but we still think that more easing will eventually be required,” London-based Capital Economics said.
The BOJ’s widely expected decision came hours after fresh data showed Japan’s trade deficit narrowed again last month as the levy hike weighed on imports — denting demand for foreign fruit, lobsters and crude oil — while shipments of goods to overseas markets rose.
The data suggested the impact of a weak yen — which sent Japan’s energy import bill soaring in the wake of the 2011 Fukushima nuclear crisis — was starting to ease, and comes after Japan logged its strongest economic growth in more than two years during the first quarter.
However, the tax rise to 8 percent from 5 percent threatens to stall activity in the coming months, and has raised concerns it will derail Japanese Prime Minister Shinzo Abe’s growth blitz, dubbed Abenomics.
Highlighting the effect of the tax increase was a nearly 36 percent decline in the import volume of shrimps, prawns and lobsters, along with a fall in fruit shipments from overseas as restaurants and retailers saw demand slump.
Data released by the Ministry of Finance showed the trade deficit shrank 7.8 percent year-on-year last month, with Japan logging a shortfall of ¥808.9 billion (US$8.0 billion) against the year-before deficit of ¥877.4 billion.
Exports climbed 5.1 percent to ¥6.07 trillion on robust shipments of automobiles and memory chips.
Imports rose 3.4 percent to ¥6.88 trillion, a much slower rate than high-paced rises seen over more than a year.
“Exports were solid and showed signs of future growth,” Daiwa Institute of Research economist Masahiko Hashimoto said.
“Imports fell on a range of goods... The drop in crude oil imports was particularly big,” he said.
Hashimoto added that Japan was likely to see a “shrinking trend” in its trade deficit.
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