BOJ Refrains From More Stimulus as Business Confidence Up
The Bank of Japan refrained from adding to unprecedented monetary stimulus after business confidence surged and Prime Minister Shinzo Abe decided the economy was strong enough to weather a sales-tax increase.
Governor Haruhiko Kuroda’s board retained a goal of expanding the monetary base by 60 trillion to 70 trillion yen ($720 billion) a year, the central bank said in Tokyo today. Thirty-five of 36 economists in a Bloomberg News survey forecast no change in policy, while one predicted more purchases of real-estate investment trusts.
Kuroda and his officials will monitor the U.S. fiscal impasse and the risk that a 5 trillion yen fiscal package announced this week won’t be enough to offset the blow to consumption and economic growth from the tax increase set for April. Most economists predict additional stimulus in the first half of next year as Abe and the BOJ try to generate 2 percent inflation after about 15 years of falling prices.
“The inaction signals confidence in the economy,” said Maiko Noguchi, senior economist at Daiwa Securities Co. and a former central bank official. “The BOJ will have to take an additional step to achieve its inflation target at some point, and the second meeting in April is the most likely timing.”
The yen strengthened against the dollar after the BOJ announced its decision, and was up 0.1 percent at 97.19 at 6:01 p.m. in Tokyo. The Topix index fell 0.9 percent today.
“The economy is a living creature and we can’t control domestic or external risks, especially those from abroad, so taking that into consideration, I will continue to respond carefully and appropriately,” Kuroda told a press conference in Tokyo after the policy decision.
The economy will contract an annualized 4.5 percent in the second quarter of 2014 before returning to growth, according to the median estimate of economists in a separate survey. The poll was mostly conducted before Abe announced the 5 trillion stimulus package with his decision to raise the sales tax to 8 percent in April from 5 percent now.
“The most important thing is that we maintain trust in the nation’s finances. In that sense, it was a very meaningful decision. I expect efforts to steadily continue to achieve a sustainable fiscal situation,” Kuroda said about Abe’s decision on the tax.
The first partial shutdown of the U.S. government in 17 years amid the standoff in Washington raises downside risks, Kuroda said.
“If prolonged, it will have a serious impact on the U.S. economy and the global economy. It’s none of our business as it is a domestic issue in the U.S., but I hope they will solve this problem as soon as possible and eliminate the uncertainties,” Kuroda said.
The BOJ maintained its view that the Japanese economy is recovering moderately, according to the policy statement. “Business fixed investment has been picking up,” and “housing investment has also increased,” the bank said, changing the wording slightly.
Kuroda said the bank will adjust its policy if upside or downside risks emerge and will continue easing until a stable inflation target is achieved.
“It could be longer than two years or it could be shorter, but in any case we aim to achieve the goal in about two years by proceeding with our policies,” Kuroda said.
Atsushi Mizuno, a former BOJ board member, said in an interview this week that a decision on any extra easing by the central bank won’t come until at least the second quarter of next year.
The yen’s slide of more than 19 percent against the dollar in the past year has buoyed corporate profits and confidence, while pushing up the cost of energy imports.
Large manufacturers’ confidence rose in September to the highest level since the early stages of the global credit crisis in 2007, a BOJ report showed this week. In contrast, consumer confidence fell for a third month in August, according to government data. Consumer prices excluding fresh food rose at the fastest pace since November 2008 in August on energy costs, rising 0.8 percent from a year earlier. That compares with the BOJ’s goal of 2 percent inflation.
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