BOJ maintains stimulus, keeps economic view intact
The Bank of Japan kept monetary policy steady and held off on revising up its assessment of the economy on Thursday, opting to wait for more clues on whether the increasingly positive mood will encourage companies to ramp up spending.
Bank lending rose nearly 2 per cent in July from a year earlier, the biggest increase in four years, BOJ data showed earlier in the day, boding well for the central bank’s efforts to boost lending with its aggressive monetary stimulus.
As widely expected, the BOJ maintained its policy launched in April of nearly doubling the monetary base to 270 trillion yen (HK$21.6 trillion) by the end of next year through massive asset purchases to end nearly two decades of deflation.
“Japan’s economy is starting to recover moderately,” the central bank said in a statement announcing the policy decision, maintaining its assessment of the economy after revising it upward in July for the seventh straight month.
A slew of positive economic data released since the BOJ’s previous meeting had heightened expectations it may offer a rosier view of the economy to say more convincingly that it is recovering.
Core consumer prices rose for the first time in more than a year, summer bonuses increased for the first time in three years and the jobless rate hit a 4-1/2 year low.
“The BOJ is more confident about the economy, but they are not likely to use more bullish language because we still need to support the economy with quantitative easing,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
“There’s nothing to suggest the need for additional easing. Prices are doing better than expected and the BOJ looks more likely to meet its price target.”
Indeed, the BOJ was slightly more optimistic on prices, saying that inflation expectations “appear to be rising on the whole” and core consumer inflation will likely accelerate.
Last month, it said there were some signs of heightening inflation expectations and that core consumer price growth will likely turn positive.
The sticking point was capital expenditure, which many within the BOJ place a lot of importance in gauging whether the huge amount of funds the central bank pumps out is reviving economic activity.
A survey by the state-backed Development Bank of Japan showed large companies planned to increase capital expenditure by 10.3 per cent in the fiscal year that started in March, up from a 2.9 per cent increase the previous year.
But shipments of capital goods, which help gauge the strength of capital expenditure, fell 12.1 per cent in June after a flat reading in May, trade ministry data showed on Monday.
Given the mixed readings, some officials likely wanted to see more data to measure the strength of business investment and whether early signs of pickup in wages and labour markets are sustainable.
The BOJ will have more indicators to gauge the strength of the economy next week with Monday’s release of second-quarter gross domestic product (GDP) data and Tuesday’s machinery orders for June - a leading indicator of capital spending.
Japan’s economy likely grew an annualised 3.6 per cent in April-June to mark the third straight quarter of expansion, a Reuters poll showed, adding to signs the positive effect of Prime Minister Shinzo Abe’s reflationary policies is spreading.
While the economy appears on track for a steady recovery, which should gradually pushing up prices, many private-sector analysts still see the BOJ’s goal of achieving 2 per cent inflation in two years as too ambitious.
The International Monetary Fund has said the central bank should be ready to expand its asset-buying programme or shift the mix of assets being purchased in the future if inflation does not pick up as envisaged.