BoJ defies calls for additional easing
Bank of Japan Gov. Haruhiko Kuroda heads to a meeting at the headquarters of Bank of Japan in Tokyo, Wednesday, April 30, 2014. Japan's central bank was meeting Wednesday to assess the status of the country's economic recovery, as monthly data showed industrial output and wage growth falling short of expectations.©AP
The Bank of Japan kept its policy settings on hold on Wednesday, defying calls from some quarters to take additional action to offset the impact of Japan’s rise in consumption tax, the first in 17 years.
At the one-day monetary policy meeting, the second in April, the BoJ elected to keep buying as many long-term government bonds as necessary to pump up the monetary base at an annual pace of about Y60-70tn ($586bn-$684bn), in pursuit of its 2 per cent target for inflation.
Attention now switches to the bank’s outlook for economic activity and prices, to be published at 3pm on Wednesday.
In January, the BoJ projected that core consumer price inflation would average 1.3 per cent in the current fiscal year beginning in April, as the index heads towards 2 per cent in the latter half of the year.
Should the BoJ revise up to 1.5 per cent or higher, it would imply that it is not anticipating much of a slump in CPI in the wake of the tax increase, which took effect on April 1. But if it leaves the forecast unchanged or moves to 1.4 per cent, it could signal to the market that it is expecting CPI to dip – perhaps strengthening expectations of another shot of easing in coming months.
BoJ governor Haruhiko Kuroda has made no substantive changes to the size or the scale of the bank’s easing programme – dubbed “qualitative and quantitative easing,” or QQE – since it was set out in April 2013.
Yet some economists and advisers to Shinzo Abe, prime minister, have argued that extra measures are needed to insulate the economy against the impact of the tax rise, the first of two increases designed to narrow Japan’s vast budget deficit.
Recent data suggests that the world’s third-largest economy is experiencing a slowdown. The Markit/JMMA purchasing managers’ index, also released on Wednesday, showed that manufacturers’ output dipped below 50 in April – signifying contraction – for the first time since February 2013.
New export orders also dropped to the lowest levels in more than a year. That could be a particular concern for the government, which had been counting on an improved trade picture to offset a drop in consumer demand after the tax rise.
Economists currently expect real gross domestic product in Japan to shrink by an annualised 3.4 per cent in between April and June, before resuming growth of 2 per cent in the third quarter and 1.7 per cent in the last three months of 2014.