Roundup: Japan's central bank stays put on monetary policy, deflation concerns remain
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E-mail Xinhua, November 19, 2014
The Bank of Japan (BOJ) on Wednesday opted to keep its massive monetary easing policy unchanged and maintained its assessment that the economy is recovering, despite Monday's data showing the economy entered into a recession, causing Prime Minister Shinzo Abe to postpone a second sales tax hike and call a snap election.
"Japan's economy continues to recover moderately as a trend, although some weaknesses remain mainly in output," the central bank said in statement following its two-day policy meeting. The BOJ also stated that exports were now "flat" based on its latest assessment, instead of "weakening" as was its view last month.
Despite data from the Cabinet Office revealing that Japan's economy contracted for a second straight quarter in the three months through September, shrinking 1.6 percent, following a revised 7.3 percent contraction in the previous quarter owing to downside pressure from the April sales tax hike, the BOJ opted to stay put on its monetary policy.
Last month the central bank took markets by surprise by unleashing a massive expansion to its already huge quantitative easing program, increasing the nation's monetary base by around 80 trillion yen (around 682 billion U.S. dollars) each year, from a previous 60-70 trillion yen.
Economists said the BOJ would now be keenly eyeing upcoming economic indicators and BOJ Governor Haruhiko Kuroda has said that the bank stand poised to take further action as and when it deems necessary, but stopped short of criticizing Abe's decision Tuesday to delay a second tax hike to 10 percent by 18-months and dissolving parliament and calling an early election.
"Whether to raise the sales tax is something the government and parliament decides, taking into account economic and other conditions," The BOJ chief said. "In general terms, it's important for Japan as a nation to maintain market trust in its finances."
"The government has laid out a medium-term fiscal consolidation plan and has set a clear target. We hope the government steadily implements measures, based on this plan, to create a sustainable fiscal structure," Kuroda told a news conference following the bank's policy meeting.
Kuroda and the bank must now wrestle to increase Japan's monetary base and raise the nation's inflation rate to 2 percent in two years to ensure market confidence, but Kuroda said Tuesday that following the country slipping into an April tax-hike- triggered recession Monday, inflation could now fall below 1 percent, dashing the prime minister's vows that his economic policies would rescue Japan's economy from two decades of stagnation.
According to the latest core consumer price index, which excludes fresh foods, the year-on-year rise has now slowed to 1 percent in September, without the direct effect of the April consumption tax hike. The central bank's outlook for growth and inflation, as per the end of October, forecast a 0.5 percent real GDP growth for the current fiscal year through March, which is 50 percent less than its July forecast of 1.0 percent.
Leading economists have also voiced concern regarding growth for the year and deflationary pressure.
Societe Generale's chief Japan economist Takuji Aida suggested that Abe's attempts to rescue the country from economic malaise may have been overly ambitious and too premature for an economy mired in deflation and only showing fledgling signs of an embryonic recovery.
Aida said that the move to increase the levy in April before the economy had completely recovered from deflation was an error in judgment, adding that in all likelihood Monday's GDP data may be a harbinger of a contraction for the whole of fiscal 2014. Endi
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