TOKYO: The Bank of Japan on Friday held off announcing any fresh measures to stimulate the economy, offering the upbeat view that it was “recovering moderately” while efforts to stoke inflation were taking hold.
The decision comes days after the bank’s closely watched Tankan quarterly survey showed business confidence has soared to a six-year high, underscoring growing optimism among Japanese firms.
However, analysts said that the bank would likely have to widen its monetary easing measures if it is going to win its battle against deflation, as a sales tax hike is due to come into effect in April.
There had been speculation of an expansion of the asset-purchasing program, after figures last week showed a sharp slowdown in July to September growth, which raised concerns about the strength of the world’s third-largest economy.
“Japan’s economy has been recovering moderately,” the BoJ said in a statement, adding that “inflation expectations appear to be rising on the whole.”
“The year-on-year rate of increase in the CPI [consumer price index]is likely to rise for the time being,” it added.
The yen was little changed after the widely expected announcement. The dollar bought 104.44 yen compared with 104.37 yen earlier on Friday, with the greenback bolstered by the US Federal Reserve’s announcement on Wednesday that it would wind-down its own stimulus from January.
The US Fed cited a pick-up in recent data for its decision to cut the bond buying by $10 billion to $75 billion a month.
Confidence on us economy
BoJ Governor Haruhiko Kuroda said that the US economy was now poised to “accelerate significantly given that concerns over budget issues have sharply decreased.”
He added that the yen’s sharp decline since late last year, which makes exporters move competitive overseas, was boosting Japan’s prospects.
“A correction to the yen’s excessive rise against other major currencies is positively affecting the Japanese economy,” he told a post-meeting news briefing on Friday.
Kuroda unveiled the BoJ’s vast asset-buying scheme in April as part of a broader plan by Prime Minister Shinzo Abe to reinvigorate the economy and eradicate deflation with a policy blitz.
Reversing years of falling prices is a key goal of the BoJ’s plan, which aims for 2-percent inflation in two years, although some analysts are growing increasingly skeptical of that ambitious timeline.
“We . . . maintain our main scenario that the BoJ will have no choice but to ease further in order to achieve the 2-percent inflation target,” Credit Agricole said ahead of Friday’s announcement.
October figures showed a key inflation indicator rising at its fastest pace since the late 1990s as Japan sank into years of deflation, which encourages consumers to put off spending in the hope goods will be cheaper down the road, hurting producers.
Cautious firms have been reluctant to usher in widespread pay or capital spending rises after years of lackluster consumer demand weighed on their expansion.
“Overall, the [October] data suggests that the Japanese economy is emerging from 15 years of almost completely constant deflation, thus there isn’t any real reason why the BoJ would need to increase stimulus” right now, said Chris Tedder, analyst at Sydney-based Forex.com.
“However, this may change next year when the government increases the sales tax,” he added.
The BoJ referenced April’s tax hike to 8 percent from 5 percent, saying that consumer demand would jump ahead of the rise before dipping afterwards.
While the increase is seen as crucial to chopping Japan’s eye-watering national debt—proportionately the worst among rich nations—there are fears it will derail its economic recovery.
To counter the threat of higher taxes denting consumer demand, Tokyo has approved a spending package worth almost $54 billion to help prop up the economy, which led growth among Group of Seven nations in the first half of the year.