TOKYO: The Bank of Japan (BoJ) on Tuesday painted an upbeat picture of the world’s number three economy and stood pat on its monetary easing program as it assesses the impact of a controversial sales tax rise.
Policymakers decided to hold fire on the multi-billion-dollar asset-purchase scheme introduced in April last year as part of a drive by Prime Minister Shinzo Abe to drag the country out of years of deflation and slumbering growth.
“Japan’s economy has continued to recover moderately as a trend, albeit with some fluctuations due to the consumption tax hike,” the BoJ said in a statement after a two-day policy meeting.
“Private consumption and housing investment have remained resilient as a trend with improvement in the employment and income situation.”
The yen strengthened slightly to following the announcement, with investors awaiting a news conference by BoJ chief Haruhiko Kuroda later in the day to see if he provides any clues about future policy. In afternoon Tokyo trade the dollar bought 102.90 yen, compared with 103.09 yen in New York Monday.
Markets had broadly expected the decision after the April 1 sales tax rise to 8.0 percent from 5.0 percent.
But while it is seen as crucial to shrinking Japan’s mountainous debt burden it has increased speculation that the BoJ will have to at one point add to its stimulus to counter an expected slowdown in consumer spending.
The last time Japan introduced in a higher sales levy, in 1997, it was followed by years of deflation and tepid economic growth that defined the country’s protracted slump.
“It came as no surprise that the Bank of Japan left policy settings unchanged today,” said London-based Capital Economics.
“But markets may be disappointed in coming months as we think further easing will be announced later than many expect.”