TOKYO (AFP) – The Bank of Japan on Tuesday struck a less optimistic tone on its view of the world’s number three economy, but held off launching fresh monetary easing measures after a two-day meeting.
The central bank, which has been upbeat on Japan’s prospects, flagged housing and industrial production as weak spots in a statement outlining its unanimous decision.
It added that an uptick in business sentiment has “paused” on the back of an April sales tax hike that led to a sharp contraction in second-quarter gross domestic product.
“Japan’s economy has continued to recover moderately as a trend,” the BoJ statement said, but it noted “some weakness, particularly on the production side” as demand dived after the introduction of April’s sales tax hike.
The BoJ said it was still on track to hit a 2.0 per cent inflation target, seen as key to reversing years of falling prices and tepid growth.
Investors will now turn their focus to governor Haruhiko Kuroda’s post-meeting comments as speculation increases that the BoJ will be forced to act as the economy continues to struggle.
“Policymakers are slowly but surely acknowledging the recent sluggishness of the economy,” said Marcel Thieliant from Capital Economics.
“The Bank’s more cautious stance will certainly trigger speculation that additional easing may already be announced at the upcoming meeting at the end of this month.”
The dollar-yen rate slid to 108.61 after the announcement, from above the 109 level earlier Tuesday, while the euro fell to 137.14 yen against 137.64 yen earlier in the day.
Kuroda’s upbeat take on Japan’s economy has appeared increasingly at odds with the official data, as Japan’s economy suffered in the April-June quarter its deepest contraction since the 2011 quake-tsunami disaster.
Japan’s top central banker has given little indication he will soon increase the BoJ’s asset-purchasing stimulus – similar to the Federal Reserve’s quantitative easing – saying the impact of the sales tax hike has not been as bad as expected.
The tax rise was seen as crucial to addressing a mammoth public debt but economists warned it could derail a budding recovery in an economy beset by years of deflation.
The 1.8 per cent dip in gross domestic product – or a 7.1 per cent contraction at an annualised rate – gave the clearest picture yet of the tax hike’s impact, and threw into question Tokyo’s plans for another rise next year.
Millions of shoppers made a last-minute dash to stores before prices went up on April 1, which was followed by a slump in spending.
Despite its generally positive take on the economy, the BoJ has lowered its growth forecast for the current fiscal year to March to 1.0 per cent, well down from a 1.5 per cent prediction in late 2013.