BOJ Cites Recovery in Japan’s Economy for First Time Since 2011

The Bank of Japan maintained course on its unprecedented monetary stimulus and upgraded its view of the economy, referring to a recovery for the first time since before a record 2011 earthquake.

“We believe we have taken sufficient measures to achieve the price stability target of 2 percent in a time horizon of two years,” Governor Haruhiko Kuroda told reporters today in Tokyo. “I’m confident we can achieve the target although we may need to address upside and downside risks.”

The bank stuck with a pledge to expand the monetary base by 60 to 70 trillion yen ($704 billion) per year, in line with the forecasts of all 20 economists surveyed by Bloomberg News before the policy board meeting.

A stronger economy increases the odds of Kuroda holding fire for the rest of this year, after a Bloomberg News survey this week showed analysts dropping predictions for further easing in October. Prime Minister Shinzo Abe’s forecast victory in an upper-house election in 10 days may strengthen his hand to push through deregulation to sustain a recovery that has so far been driven by monetary and fiscal stimulus.

“The chance for additional monetary easing is gradually receding,” said Long Hanhua Wang, an economist at Royal Bank of Scotland Group Plc in Tokyo. “Kuroda has made it clear that he’s avoiding incremental easing and so far the governor has succeeded in spurring inflationary expectations and changing mind-sets with his one-time, massive measures.”

Weaker Yen

The yen strengthened 0.3 percent to 99.35 per dollar as of 6:07 p.m. in Tokyo, paring its decline over the past year to about 13 percent.

Japan’s economy “is starting to recover moderately,” the BOJ said in a statement, raising its view for a seventh straight month. It was the first time since January 2011 that the central bank has used the word “recovery” in its assessment.

The bank kept its April forecast that prices, excluding the effects of a planned sales tax increase, will rise 1.9 percent in the year starting April 2015. It trimmed some other forecasts for inflation and economic growth. The BOJ now sees inflation of 0.6 percent in the current fiscal year and 1.3 percent in the following 12 months.

A few board members have become more cautious on prices since April, while their number has not increased, Kuroda said.

The central bank is chasing a target of 2 percent inflation, focusing on a gauge that excludes fresh food, as it endeavors to halt 15 years of deflation.

Policy Adjustment

The BOJ may adjust its policies as overseas conditions change, Deputy Economy Minister Yasutoshi Nishimura said in an interview in Hong Kong yesterday.

“The Bank of Japan has various options for its decisions as events unfold in the markets or overseas,” Nishimura said. “It will basically continue conducting its current policy, while being able to make various adjustments such as increasing the frequency of its bond purchases.”

An Abe victory in the July 21 election would end a split parliament and help him pursue a strategy to lower barriers to investment and hiring -- the third of his three “arrows” of Abenomics after fiscal and monetary stimulus.

Data since the last central bank meeting in June showed better-than-expected industrial production and retail sales, and large manufacturers turning optimistic for the first time in two years.

“The BOJ’s confidence in the outlook for the economy and prices is deepening as a full recovery is in sight,” said Mari Iwashita, a bond strategist at SMBC Nikko Securities Inc.

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