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Shirakawa Bets Japan May Revive Without Extra BOJ Stimulus

Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

April 29 (Bloomberg) -- The Bank of Japan raised its growth forecast for next year on optimism the economy will bounce back on reconstruction work and restored power supplies after factory output dropped by a record in March.

The world’s third-largest economy will expand 2.9 percent in the year starting April 2012, the central bank said yesterday. It more than halved its prediction for this fiscal year to 0.6 percent after the March 11 earthquake.

Governor Masaaki Shirakawa and his board yesterday rejected a call by one of his deputies for additional asset purchases to spur growth as they assess the effects of the central bank’s existing stimulus. Companies from All Nippon Airways Co. to Panasonic Corp. have delayed profit forecasts after the economy took a bigger-than-estimated hit in March and as analysts predict a contraction this quarter.

“The board thinks it’s useless to ease policy when supply constraints are the main factor depressing growth,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. “April data probably won’t be as drastic as March, but the BOJ may be compelled to add more stimulus if it sees signs of a prolonged slump.”

Finance Minister Yoshihiko Noda urged care in considering any increase in bond purchases by the central bank, when he spoke to lawmakers in Tokyo today.

Nippon Electric

The Nikkei 225 Stock Average rose 1.6 percent yesterday after the U.S. Federal Reserve renewed its pledge to support the economy, Japan’s second-largest export destination, and companies including Nippon Electric Glass Co. reported better earnings. Japanese markets are closed today.

The BOJ said the nation’s economic outlook hinges on when supply-side constraints that have hurt production and shipments can be resolved. It predicted that some of them will ease by this fall, while Economic and Fiscal Policy Minister Kaoru Yosano yesterday said the limitations will be erased “earlier than we all expected,” without elaborating.

“We implemented drastic measures in March, so it’s appropriate to gauge the effectiveness of those now,” Shirakawa told reporters in Tokyo yesterday after his board rejected deputy Kiyohiko Nishimura’s proposal to expand asset purchases to 15 trillion yen ($184 billion) from 10 trillion yen. “We’re fully aware of the high degree of uncertainty about the outlook and stand ready to take appropriate action if determined necessary.”

Lawmakers’ Calls

Nishimura’s proposal, which Shirakawa said was driven by the deputy’s concern about worsening corporate and household sentiment, echoes calls from some lawmakers for the BOJ to unveil more stimulus to shore up the economy.

Since the temblor, the central bank has injected record amounts of cash into the money market, doubled the size of its asset-purchase fund and unveiled a one-year lending program for bank in areas affected by a quake.

“Nishimura did the right thing in proposing further easing given uncertainties are high and there’s room for the bank to do more,” said Masamichi Adachi, senior economist at JPMorgan Chase and a former Bank of Japan official. “His opposition is going to make BOJ meetings a lot more interesting from now on.”

A cross-party group of lawmakers this week said the government shouldn’t raise taxes to pay for rebuilding and called on the BOJ to buy more government debt instead. The BOJ purchases 1.8 trillion yen in bonds every month.

Power Supply

Power shortages that threaten growth may also be less severe than initially estimated. Trade Minister Banri Kaieda said yesterday the government has reduced energy-saving goals for companies to 15 percent from 25 percent because of increased supply, according to Kaname Ogawa, a deputy director at ministry’s Electricity and Gas Department. Kaieda didn’t disclose how much supply will increase by, he said.

Energy shortages contributed to the record decline in output and largest drop in retail sales in 13 years in March. Toyota Motor Corp. output in Japan plunged 63 percent in March from a year earlier and the company estimated it may lose production of 300,000 autos in Japan because of shutdowns.

A government survey released with yesterday’s output report showed manufacturers plan to step up output 3.9 percent this month and 2.7 percent in May, an indication that last month’s plunge was only temporary.

The central bank raised its inflation forecast for fiscal 2011 to 0.7 percent from an earlier estimate of 0.3 percent, a report released after yesterday’s policy decision showed. Growth will accelerate to 2.9 percent next year, while consumer prices will rise by 0.7 percent, the same amount projected for this year, the bank said.

‘Too Optimistic’

Not all economists think the recovery will get underway as smoothly as the central bank projects. Additional spending packages rolled out by Prime Minister Naoto Kan may also compel the central bank to loosen policy further, according to Akio Makabe, an economics professor at Shinshu University in central Japan.

Five of the 14 economists surveyed by Bloomberg News last week said the bank will likely ease policy in June or July, when the government is expected to compile a next round of extra budgets to pay for reconstruction.

“The BOJ’s economic view is too optimistic,” said Susumu Kato, chief economist for Japan in Tokyo at Credit Agricole CIB and CLSA. “Consumer sentiment is deteriorating, in addition to the slump in production and exports. The downside risks to the economy could be bigger than the BOJ projects.”

To contact the reporter on this story: Lily Nonomiya in Tokyo at; Mayumi Otsuma in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

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