Bank of Japan (BOJ) Governor Haruhiko Kuroda secured a wider majority yesterday and said that inflation could fall below 1 percent after the world’s No. 3 economy slid into recession.
The bank yesterday held on to its upbeat view that the economy was recovering, despite GDP data that showed Japan had slipped into recession, inspiring a snap election.
Wrapping up a two-day policy meeting, the central bank kept policy unchanged. However, its board voted 8-1 to continue expanding the monetary base at an annual pace of ￥80 trillion (US$681.9 billion) following a split decision to increase stimulus last month.
Photo: AFP
“With regard to the outlook, Japan’s economy is expected to continue its moderate recovery trend and the effects — including those of the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike — are expected to dissipate gradually,” the bank said in a statement.
Despite its bullish view on the overall economy, the bank was more cautious on inflation expectations, saying: “[They] appear to be rising on the whole from a somewhat longer-term perspective.”
“The tone of the statement turned more optimistic with regards to the economic outlook. While board members noted that some weakness on the production side remained, they upgraded their views on exports, housing investment and private consumption,” Marcel Thieliant of Capital Economics said.
“However, the bank now expects inflation to remain at current levels of 1 percent for the time being, rather than to pick up as in previous statements,” he said.
Thieliant added: “The statement suggests additional stimulus in the near term is not on the cards.”
Japanese Prime Minister Shinzo Abe is delaying a sales-tax increase and aims to increase spending as Kuroda implements unprecedented asset purchases. The central bank is targeting price gains of 2 percent in an economy that unexpectedly contracted in the third quarter as Japan struggles to pull out of two decades of stagnation.
Consumer prices excluding fresh food rose 3 percent in September from a year earlier, slowing from a 3.1 percent gain in August. Stripping out the effects of April’s increase in the sales tax, the central bank’s core measure of inflation was 1 percent in September, a level Kuroda said in July would not be breached.
The yen weakened 0.4 percent against the US dollar to ￥117.37 at 4:56pm yesterday in Tokyo trading and is trading near a seven-year low. Japan’s TOPIX advanced 0.1 percent.
The economy shrank an annualized 1.6 percent last quarter following a 7.3 percent contraction in April-to-June.
The bank bolstered its already-record stimulus on Oct. 31, pledging to increase bond holdings at an annual pace of ￥80 trillion.
Kuroda, backed by his two deputies and board members Sayuri Shirai and Ryuzo Miyao, prevailed over opposition from Yoshihisa Morimoto, Koji Ishida, Takahide Kiuchi and Takehiro Sato. That Oct. 31 vote was the closest since 2008, when the bank’s board split over how much to cut the overnight lending rate.
Additional reporting by AFP
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