TOKYO: The Bank of Japan (BoJ) on Wednesday held on to its upbeat view that Japan’s economy was recovering, despite GDP data that showed the country had unexpectedly slipped into recession, forcing a snap election.
Wrapping up a two-day policy meeting, the central bank kept policy unchanged—after expanding its already huge stimulus package last month—as investors eye BoJ governor Haruhiko Kuroda’s press briefing later in the day.
Markets want to see what Kuroda says about the government’s decision to delay a sales tax rise next year, after a levy hike in April slammed the brakes on growth just as the deflation-plagued economy appeared to be turning a corner.
The BoJ chief—who was hand picked by Prime Minister Shinzo Abe—has repeatedly called on Tokyo to follow through on tax rises, which are aimed at generating fresh revenue to pay down Japan’s enormous national debt.
“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 BoJ said in a statement.
Despite its bullish view on the overall economy, the bank was more cautious on inflation expectations, saying that 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,” said Marcel Thieliant from Capital Economics.
“However, the BoJ now expects inflation to remain at current levels of 1.0 percent for the time being, rather than to pick up as in previous statements.”
Thieliant added that “the statement suggests additional stimulus in the near-term is not on the cards.”
Snap election, tax rise delayed
In forex markets, the yen weakened further with the dollar at a seven-year high of 117.30 yen after the announcement, up from 116.83 yen in New York.
The BoJ’s decision means it will keep trying to pump cash into the banking system at an annual pace of 80 trillion yen ($682 billion), a scheme designed to stimulate the economy. Last month, the bank surprised markets by ramping up its vast monetary easing program by as much as 20 trillion yen annually to the current level.
It also slashed its economic growth forecast by half and trimmed consumer price expectations as a much-touted 2.0-percent inflation target looked increasingly out of reach.
Abe on Tuesday said he was calling a snap election and delaying the second sales tax rise next year after the poor gross domestic product figures on Monday.