TOKYO: The Bank of Japan (BoJ) held fire on expanding its unprecedented monetary easing scheme on Tuesday but warned a slowdown in emerging markets was weighing on growth, prompting speculation it will unveil fresh measures soon.
A raft of weak data had ramped up pressure on the central bank to expand its 80 trillion yen ($665 billion) annual asset-buying scheme to stimulate the sagging economy, which contracted in the second quarter.
The BoJ said in a statement after its two-day policy meeting that while that the world’s number three economy “has continued to recover moderately . . . exports and production are affected by the slowdown in emerging economies.”
Analysts believe the bank may soon be forced to ramp up its easing program as slowing growth in China—Asia’s top economy and a major market for Japanese exporters—weighs on exports.
Most had expected the BoJ sit on its hands this week to see whether the US Federal Reserve decides to raise its key interest rate for the first time in a decade, a move that could hit emerging markets.
A survey by Bloomberg News carried out before the announcement found that 33 out of 35 economists predicted no change of policy.
But with the economy still in the doldrums two years after Prime Minister Shinzo Abe launched his “Abenomics” policy blitz to kickstart the economy and conquer deflation, the odds are growing that the bank may act next month.
Marcel Thieliant of Capital Economics said in a client note: “The Bank of Japan’s more cautious assessment of economic conditions suggests that policymakers will announce additional monetary stimulus before too long.”
Abe’s program called for big government spending, massive BoJ monetary easing and reforms to cut red tape in Japan’s highly regulated economy—reforms that have now stalled, however.
Household spending has been unsteady following a sales tax rise last year, brought in to pay down a massive national debt, which saw consumers rush to stores before prices rose.
Inflation has also remained close to zero, keeping Japan teetering on the brink of a dangerous cycle of deflation where consumers put off spending in the hope of cheaper prices, hurting businesses and sapping government coffers.
BoJ chief Haruhiko Kuroda has pushed back a timeline for hitting 2.0 percent inflation, a cornerstone of Abenomics, although he has signaled he would consider expanding stimulus if weak oil prices keep price rises close to zero.