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  • Oct 26, 2014
  • Updated: 5:19am
BusinessEconomy
ECONOMY

Bank of Japan keeps rates on hold, says economy starting to recover

PUBLISHED : Thursday, 11 July, 2013, 11:40am
UPDATED : Friday, 12 July, 2013, 3:38am

An economic recovery is under way, the Bank of Japan said yesterday as it kept monetary policy steady, with its most optimistic view in two and a half years reflecting the positive impact on economic activity of a weakening yen and its massive monetary stimulus.

The central bank made no major changes to its forecast that consumer inflation will accelerate to nearly 2 per cent by March 2016, a key target for Prime Minister Shinzo Abe's drive to reflate the economy.

As widely expected, the bank voted unanimously to maintain its pledge of increasing base money - cash and deposits at the central bank - at an annual pace of 60 trillion (HK$4.6 trillion) to 70 trillion yen.

"Japan's economy is starting to recover moderately," the central bank said after its two-day meeting, revising up its assessment for the seventh consecutive month.

The last time the bank used the word "recover" to describe the economy was in January 2011, two months before the March 11 earthquake and tsunami that devastated the country.

Many central bank officials are encouraged by bright signs in the economy as the yen's fall to multiyear lows supports exports and the feel-good mood generated by Abe's reflationary strategy bolsters consumer spending and business confidence.

The Bank of Japan said capital expenditure had stopped weakening and was showing some signs of picking up, and also upgraded its view on factory output.

Data released yesterday supported that view, with core machinery orders, a leading indicator of capital expenditure, rising a bigger than expected 10.5 per cent in May.

Analysts said the bank's optimism suggested it would probably hold off on any additional stimulus until at least late October.

"There's no material change to the BOJ's forecasts from April. Basically, the economy is recovering in line with its main scenario," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

Financial markets have recently sold off on concerns that the US Federal Reserve may scale back its US$85 billion a month bond-buying programme. Fed chairman Ben Bernanke said on Wednesday that a highly accommodative policy would be needed for the foreseeable future.

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