BoJ dampens speculation on further easing


TOKYO: The Bank of Japan (BoJ) on Wednesday doused expectations of more easing measures in coming months, saying the world’s number three economy was improving despite concern that a sales tax rise will derail recovery.

Policymakers also dropped the word “deflation” from their post-meeting statement, after unanimously agreeing to keep the central bank’s stimulus drive unchanged following a two-day meeting.

The BoJ said its moves to boost laggard growth were taking hold as Japan’s economy staged a “moderate recovery” even though consumer spending dropped after sales taxes rose on April 1—a rise seen as crucial to cutting the massive national debt.

Last month the BoJ cut its economic growth expectations for the fiscal year to March, which boosted speculation it would expand its monetary easing campaign to counter a tax-driven downturn.

On Wednesday BoJ governor Haruhiko Kuroda repeated that he was still ready to take further measures but gave no signal they were imminent.

The impact of the sales tax rise—Japan’s first in 17 years—had been no worse than expected, while the BoJ’s stimulus drive was “having the effect it was designed to have,” Kuroda added.

“Our view is that individual consumption will remain fundamentally solid with an improvement in employment and income conditions,” the BoJ chief told reporters.

“The impact of the rush demand ahead of the consumption tax hike will diminish after summer,” he added.

Kuroda sidestepped questions about whether the omission of “deflation” from the post-meeting statement indicated that Japan had emerged from a 15-year cycle of falling prices that held back the economy.

“The statement today did not make any particular reference on that matter,” he said, adding that we “haven’t changed the substance” of our view.

Easing ‘off the table’
The bank’s upbeat assessment “suggests that the introduction of additional monetary easing as soon as July, which has been the consensus expectation for some time, is off the table,” said Marcel Thieliant from Capital Economics.

“We, however, continue to believe that more easing will be introduced later in the year,” he added.

The bank’s stimulus, similar to the US Federal Reserve’s asset-buying plan known as quantitative easing, aims to inject massive sums of money into the financial system to spur growth and reach a 2.0-percent inflation target by next year.

This easing is a cornerstone of Prime Minister Shinzo Abe’s policy blitz dubbed Abenomics which called for big government spending, looser monetary policy and deregulation as the prescription for kickstarting growth.

The idea is that long-absent price rises would make cautious firms more confident to invest and expand, putting upward pressure on wages and boosting the wider economy.

But the tax rise to 8.0 percent from 5.0 percent threatens to stall activity in the coming months, and has raised concerns it will derail Abe’s growth blitz.

Tokyo’s moves ushered in a sharp drop in the yen—boosting exporters’ profitability—and a stock market rally last year.

Critics, however, say Abe has yet to follow through on structural reforms to the economy, including shaking up labor markets, signing free-trade deals and bringing more women into the workforce.

On Wednesday the yen strengthened on the BoJ statement, with the dollar buying 100.92 yen in late afternoon trade from above 101.30 yen beforehand.

The widely-expected decision came hours after fresh data showed Japan’s trade deficit narrowed again last month as the tax rise weighed on imports—denting demand for foreign fruit, lobsters and crude oil—while shipments of goods to overseas markets rose.

The data suggested the impact of a weak yen—which sent Japan’s energy import bill soaring in the wake of the 2011 Fukushima nuclear crisis—was starting to ease, and comes after Japan logged its strongest economic growth in more than two years during the first quarter.



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