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BOJ Trims Growth Forecast Leaves Price Outlook Intact, Stands Pat on Policy

TOKYO--The Bank of Japan slightly cut its growth outlook in a new projection released Tuesday, but kept its policy on hold and maintained a bullish consumer-price forecast, suggesting officials feel little urgency to add to their aggressive stimulus measures.

The central bank updates the forecasts once every quarter, attracting close market attention as they are seen as a barometer of how inclined the central bank is to change monetary policy over the following months. As the BOJ's primary goal is to wipe out deflationary pressure and achieve 2% inflation, the absence of downward revisions to the inflation projections suggests a slimmer chance of immediate easing measures.

Officials have so far played down the need of further action, saying they are on track to meet their target of 2% inflation by next year, even as Japan's economy shows signs of stress following a national sales tax increase to 8% from 5% that took effect April 1.

The central bank now expects the economy will grow a price-adjusted 1.0% for the current financial year ending March, compared with the previous forecast of a 1.1% expansion.

The BOJ kept its growth forecasts for the next fiscal year and for fiscal 2016 unchanged at gains of 1.5% and 1.3%, respectively.

The central bank kept all its price forecasts unchanged. The central bank expects the core consumer price index to rise 1.3%, adjusted for the tax change, in the ongoing financial year. The figure represents the board's median expectation. The board sees inflation of 1.9% in the year through March 2016, and 2.1% for the year ending March 2017.

The core CPI climbed 1.4% in May from a year earlier, the month for which latest government data are available.

The BOJ releases its forecast in April and October through semiannual outlook reports, and conducts interim reviews in January and July.

Mr. Kuroda will hold a news conference from 0630 GMT.

The economy is likely in for a sharp contraction during the April-June quarter, as consumer spending plummeted in the wake of the sales tax increase. But officials have remained upbeat, saying the slowdown has been within their expectations, causing some economists to push back their expectations for fresh easing steps.

Under the central bank's rosy scenario, corporate spending and government stimulus will keep the economy going until consumption recovers, while a tightening labor market and rising inflation expectations will put more upward pressure on prices, fueling the transition to inflation from over a decade of deflation.

Mr. Kuroda has also said the inflation rate will fall to "around 1%" over the summer on stabilized import costs, but will resume an upward march toward 2% later this year. That is likely a message that it is wrong to bet on fresh easing steps, barring a clear drop in the inflation rate below 1%, economists say.

The BOJ board voted unanimously to maintain its easing measures, which aim to increase the amount of money in Japan's banking system at an annual pace of ¥60 trillion-¥70 trillion.

AbbVie closes in on £31bn takeover of Shire

AbbVie is closing in on a £31bn takeover of Shire in what would be the latest example of a US company buying a European rival as a way to lower its tax bill. The two sides were on Monday thrashing out final details of the deal after London-listed Shire said it was prepared to recommend a £53.20-a-share bid made by AbbVie over the weekend.

The Chicago-based drugmaker, best known for its Humira rheumatoid arthritis medicine, has until Friday under UK takeover rules to make a firm offer to shareholders. If successful, the takeover would add to the trend of US companies, particularly in the healthcare sector, using foreign acquisitions as a vehicle to move their tax domicile overseas – putting offshore cash out of reach of the US taxman. Analysts at Barclays estimated the deal would provide an estimated $1.3bn in tax savings for AbbVie by 2020. The US company intends to keep its main headquarters in Chicago but would move its tax base to the UK – a tactic known as an inversion. Others to have struck similar deals this year include Medtronic, the US medical device maker, which agreed last month to buy Dublin-based Covidien for $42.9bn. AbbVie looks set to succeed where Pfizer failed in its £69.4bn bid for AstraZeneca of the UK in May. Whereas Pfizer faced stiff political opposition because of AstraZeneca’s importance to the UK science base, most of Shire’s employees and research is based in the US. Lex live: AbbVie/Shire: The inversion version

Shire Pharmaceutical is getting ready to recommend an offer from AbbVie to its shareholders – on AbbVie’s fifth attempt. Tax inversion – AbbVie leaving the US to domicile in the UK with Shire – will be a big part of any deal. Lex wonders how big. Continue reading However, the takeover of Shire would remove one of the fastest growing FTSE 100 companies from the UK investment landscape, nearly three decades after it started life selling calcium supplements above a shop in Basingstoke, southern England. Shire has long been seen as one of the most attractive midsized takeover targets in the pharmaceuticals industry with its portfolio of rare disease drugs as well as a market-leading position in the treatment of attention deficit hyperactivity disorder. Mick Cooper, analyst at Edison Investment Research, said the proposed offer “seems a fair price that represents good value for both companies’ shareholders”.

The latest proposal is AbbVie’s fifth attempt to lure Shire into a takeover since the courtship began in May. Under the terms of the revised proposal, Shire shareholders would receive £24.44 a share in cash and own approximately 25 per cent of the combined entity. The 46 per cent cash portion of the offer is slightly increased from 44 per cent in the previous offer. For AbbVie, the acquisition would reduce its dependence on its Humira rheumatoid arthritis drug, which accounts for 60 per cent of sales and loses patent protection at the end of 2016. The company was spun off from Abbott Laboratories last year.

Shire looking for assurances from AbbVie on execution risks

Shire, an FTSE-100 pharmaceuticals group, wants assurances from AbbVie on execution risks relating to the listed, Chicago, Illinois-based company’s takeover bid, The Daily Telegraph reported.

The newspaper said Shire is looking for reassurances from AbbVie regarding the risks involved in the latter executing its tax inversion strategy, but did not cite a source for the claim.

Shire yesterday, 14 July said it was in detailed negotiations with AbbVie over the US group’s GBP 53.20 (USD 66.82) per share takeover bid. Shire indicated that it would be prepared to recommend the offer if other terms were resolved, the item noted.

AbbVie’s revised offer would give Shire investors about 25% of the merged group, the article said, noting that a tax “inversion” – transferring the enlarged group’s domicile for tax purposes to the UK – requires a 20% stake for shareholders in the target company.

Shire has voiced concerns about execution risks relating to a tax inversion strategy previously, the article said.

The newspaper went on to quote a tax source who said Shire needs to ensure that moving the enlarged group’s domicile to the UK would benefit Shire also.

The tax inversion might also have implications for AbbVie’s US investors in terms of potential capital gains taxes, according to people cited by the report.

Dealmakers cited by the newspaper said Shire could choose to implement a “reverse break fee,” under which AbbVie would be liable to pay Shire in the event that the proposed takeover fails due to tax reasons; or Shire could insert a condition into the deal agreement stipulating that the takeover depends on US taxation remaining the same.

The article added, however, that Shire’s decision to allow AbbVie to conduct due diligence suggests that a deal is inevitable.

AbbVie’s offer values Shire at GBP 31.3bn, according to the report.

Source Daily Telegraph