Japan’s central bank pointed to signs of improvement in the world’s third-biggest economy after ending a policy meeting yesterday with no change to its ultra-loose monetary stance.
The Bank of Japan (BOJ) said that lower energy costs due to the plunge in crude prices will slow progress toward its inflation target of 2 percent.
However, it cited a recovery in exports, improved industrial production and increased corporate investment as evidence that Japan’s economy is in a “moderate recovery trend.” Japan exited a recession in the last quarter of 2014.
It said a slump in housing investment is beginning to bottom out.
“As was widely expected, the Bank of Japan left policy settings unchanged at today’s meeting,” Marcel Thieliant from Capital Economics said. “Board members upgraded their assessment of industrial production and exports, which they now see picking up. But they also acknowledged the disappointing Q4 GDP data released on Monday by noting that the recovery in private consumption has been sluggish in some areas.”
“The BOJ does not seem to be fully convinced over the strength of the economic recovery, and we still think that policymakers will announce more stimulus in late April,” Thieliant added.
The BOJ’s post-meeting statement yesterday said inflation, excluding the effects of the tax hike, was hovering around 0.5 percent, down from an earlier range of 0.5-1.0 percent that the bank used last month.
The price downgrades underscore how reaching the BOJ’s 2.0 percent inflation target by early next year looks unlikely, and it may ramp up expectations for another round of monetary easing.
The BOJ is injecting tens of trillions of yen into the economy each year to encourage business investment and push prices higher, in turn weakening Japan’s currency.
The weaker currency has fattened profits of exporters, helping push share prices to seven-year highs.
In its statement, the central bank did not mention the issue of falling or stagnant wages. They are a key concern frequently raised both by BOJ Governor Haruhiko Kuroda and Japanese Prime Minister Shinzo Abe, who has made strong fiscal and monetary stimulus his main strategy for countering years of deflationary stagnation.
The central bank did note, regarding private consumption, that the “recovery in some areas has been sluggish.”
Kuroda and Abe, and many economists, say that long-term growth will hinge on improved purchasing power for Japanese consumers, whose spending is the main driver of growth. They have been lobbying the business community to raise wages at a faster pace to help support the recovery.
Although the economy grew at a 2.2 percent annualized pace in the last quarter, it was flat for the entire year, which was its worst performance in three years.
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