The Bank of Japan (BOJ) yesterday maintained its massive stimulus program and offered a slightly more upbeat view of the world’s third-largest economy, citing a modest rebound in consumption and exports.
Adding to the more upbeat tone, a Reuters poll showed retailers’ mood turned positive this month and hit the highest level since June last year, when sales were reeling after a sales tax increase.
That added to some signs of hope from Wednesday’s data that showed Japan’s economy expanded at the fastest pace in a year in the January-to-March quarter due to modest increases in private consumption, which makes up about 60 percent of GDP.
Photo: Reuters
The central bank revised up its assessment on household spending and housing investment — the two components hit most by last year’s sales tax hike — underscoring its conviction that the economy has emerged from the doldrums.
“Both for households and companies, a positive cycle is kicking in,” where increases in income are leading to higher spending, BOJ Governor Haruhiko Kuroda told reporters after the meeting.
Kuroda acknowledged that the bank’s drive to banish deflation might be swayed by the steep fall in oil prices, but he told a news conference he remains confident of hitting its 2 percent inflation target.
In announcing its decision to keep policy steady, the BOJ said: “Private consumption is firm reflecting steady improvements in job and income conditions. Housing investment is bottoming out and showing signs of a pick-up.”
However, some analysts were puzzled with the BOJ’s optimism, given the modest pace of recovery.
“If you look at the data, the trend for the economy has not improved as much as the BOJ’s upgrades would suggest, so I find this move a little hard to understand,” Mitsubishi UFJ Morgan Stanley Securities strategist Shuji Tonouchi said. “We still expect the debate about additional easing to heat up again this autumn, because consumer prices are not likely to rise as fast as the BOJ expects.”
As widely expected, the BOJ maintained its pledge of increasing base money at an annual pace of ¥80 trillion (US$662 billion) through aggressive asset purchases.
“Japan’s economy continues to recover moderately,” the central bank said, slightly revising up its view from last month when it said the economy was recovering moderately “as a trend.”
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