TOKYO: The Bank of Japan (BoJ) held fire on Wednesday on expanding its already huge stimulus program, despite mounting pressure on policymakers from sluggish growth and stagnant prices.
The decision follows disappointing data that has raised questions about the effectiveness of Prime Minister Shinzo Abe’s drive to kickstart the economy, which contracted in the second quarter of the year.
It also comes a day after the International Monetary Fund lowered its growth forecast for this year and next, calling on authorities to work harder to slash a national debt that is more than twice as big as gross domestic product (GDP).
On Wednesday the BoJ maintained its recent rhetoric on the state of the economy, saying in a statement it “has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies”.
Looking ahead, it repeated: “Japan’s economy is expected to continue recovering moderately.”
The yen firmed against the dollar after the announcement. The greenback bought 119.90 yen, compared with 120.28 yen in New York.
Bank governor Haruhiko Kuroda later insisted inflation was on a rising trend, although he admitted that “wholesale prices are declining to some extent” due partly to falls in oil prices.
Asked if the BoJ was ready to take fresh easing measures, Kuroda repeated: “We will examine both upside and downside risks to economic activity and prices, and if necessary we will take additional measures without hesitating.”
While economists had expected the bank to maintain its current 80 trillion yen ($665 billion) annual asset-buying scheme at Wednesday’s meeting, attention is now focused on a gathering at the end of the month, with speculation it will act then.
Abe in April 2013 unveiled a plan to kickstart the economy and bring an end to painful deflation with a vast government spending program and a central bank asset-buying program — or quantitative easing — dubbed “Abenomics.”
While the scheme showed early promise, with stocks surging and growth advancing, recent weak data has raised questions about its effectiveness as consumer prices stagnate and economic growth remains torpid.
Another part of the scheme — reforms to cut red tape in the highly regulated economy — has also stalled. Experts say Abe’s push to pass highly unpopular security legislation last month could make it even harder to enact reforms due to sagging public support.
Asked about his view on Abe’s recent pledge to boost Japan’s nominal economic growth by 20 percent to 600 trillion yen ($5 trillion) by 2020, Kuroda said “it’s doable but challenging,” noting painful reforms are the key.
The IMF estimated in its semi-annual World Economic Outlook that Japanese growth this year would hit 0.6 percent, followed by 1.0 percent expansion in 2016.
That compares with projections earlier this year for 0.8 percent and 1.2 percent respectively.
Data last week showed spending among Japanese households rebounded in August, offering a glimmer of hope after a string of week figures, but economists warned the world’s number three economy was still headed for recession.
Factory production fell unexpectedly for a second month in August, while consumer prices dropped for the first time in more than two years, according to data last month.
“Even though industrial production is moving flat, the virtuous cycle of corporate profit to expenditure is working, and (recovery in) domestic demand is steady,” Kuroda said.