Bank of Japan stands pat as Kuroda sees ‘gentle recovery’

Further stimulus unlikely as the central bank offers a more upbeat view on overseas growth with solid household spending and better job market

PUBLISHED : Friday, 13 June, 2014, 3:43pm
UPDATED : Saturday, 14 June, 2014, 4:20am

The Bank of Japan kept monetary policy steady yesterday and offered a slightly more upbeat view on overseas growth, signalling confidence that the economy is on course to meet its inflation target next year without additional stimulus.

Governor Haruhiko Kuroda said the economy was showing signs of having weathered a sales tax increase in April that had been watched by economists as a risk to the recovery.

"The economy is moving roughly within our expectations. Household spending remains solid as a trend," Kuroda said, noting there were also signs of clear improvement in job conditions and incomes.

"We expect a gentle recovery to continue," he added.

The central bank has become increasingly convinced that the world's third-largest economy will continue its modest recovery, with companies ramping up capital spending and consumer confidence holding up despite the pain from the recent sales tax increase.

Sluggish exports remain a soft spot for the economy, however, although BOJ officials see overseas headwinds receding as China's exports rebound and the United States economy recovers from a severe winter.

"Overseas economies, mainly advanced economies, are recovering, although lacklustre performances are seen in some areas," the central bank said in a statement issued before Kuroda began speaking to reporters.

That was a slightly brighter view than last month, when it said global growth was "starting to recover", albeit with lacklustre performances in some areas.

As widely expected, the BOJ maintained its monetary policy framework, under which it has pledged to increase base money by between 60 trillion yen (HK$4.77 trillion) and 70 trillion yen per year through aggressive asset purchases.

The central bank also left unchanged its assessment that the economy continued to recover moderately as a trend, while exports had been "more or less flat".

Last week, the European Central Bank became the first major central bank to impose negative interest rates by charging financial institutions for parking funds at the central bank, a move markets see as partly aimed at keeping gains in the euro in check.

Both the ECB and the BOJ argue that their monetary policies are not directly aimed at influencing currencies. However, they do prefer their currencies to weaken because that will push up domestic prices, forestalling deflation, and give exporters a competitive advantage overseas.

Japan logged its fastest growth in two years in the first quarter, thanks to strong capital spending, in a fresh sign that the economy is in better shape to weather the hit from the sales tax rise.

Kuroda's optimism has led market players to scale back bets of further monetary easing this year, although many economists remain sceptical that prices will continue to pick up.

Under an intense burst of stimulus launched in April last year, the BOJ pledged to double base money through aggressive asset purchases to end deflation and accelerate consumer inflation to 2 per cent in about two years.