BOJ Sticks With Easing as Analysts Delay Action Calls

The Bank of Japan raised its view of overseas economies while maintaining unprecedented stimulus as Governor Haruhiko Kuroda strives to boost inflation that remains short of a 2 percent target.

The central bank will continue to expand the monetary base at a pace of 60 trillion yen to 70 trillion yen ($688 billion) per year, it said in a statement today in Tokyo, in line with estimates of all 33 economists in a Bloomberg News survey.

A rebound in consumer sentiment and signs of strength in business investment indicate some resilience in the world’s third-biggest economy after April’s sales-tax increase. At the same time, a rebound in the yen after last year’s 18 percent decline against the dollar threatens to undercut inflation, with most economists surveyed by Bloomberg forecasting the central bank will boost stimulus this year to achieve its goal.

“The BOJ is growing more confident about the economy and its outlook,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “Still, weakness in consumer spending and a halt in yen declines make it doubtful inflation will accelerate, prompting the BOJ to add to easing in October.”

Consumer prices excluding fresh food rose 3.2 percent in April, the fastest pace since 1991. Stripping the impact of the 3 percentage point increase in the sales tax, core prices -- the BOJ’s preferred inflation gauge -- climbed 1.5 percent, according to a BOJ estimate.

Consumer Confidence

The Topix index of shares fell 0.1 percent at 1:09 p.m. in Tokyo after U.S. shares dropped amid mounting violence in Iraq. The yen weakened 0.2 percent to 101.90 per dollar.

The economy is seen contracting an annualized 4.3 percent in the three months through June, following 6.7 percent growth in the first quarter, a separate Bloomberg survey showed. The poll points to an expansion of 2.2 percent in the third quarter.

Overseas economies “are recovering,” the central bank said in a statement following the policy decision. Last month, the BOJ said they were “starting to recover.”

Signs of resilience in the economy following the sales-tax increase and confidence expressed by Kuroda have led a growing number of economists to delay, or abandon, calls for additional easing.

Consumer confidence rebounded in May from a slump in April, reaching the highest since January. The outlook among people such as taxi drivers and restaurant workers rose to the highest level in five months, according to a separate Cabinet Office survey.

Growth Strategy

Kuroda said on June 7 that the BOJ’s easing is having the intended effects and is leading to an improvement in financial markets, the economy, prices and expectations.

Forty-two percent of economists forecast the BOJ will boost stimulus in October, which displaced July as the most popular pick for action, according to the Bloomberg survey conducted June 3-6. Fifty-eight percent see BOJ action by the end of this year, dropping from 75 percent last month.

It’s premature to “write off” further easing, Marcel Thieliant, a Singapore-based economist at Capital Economics, wrote in an e-mailed note after the decision. Many of the structural reforms that could be included in the government’s latest growth strategy due later this month could damp inflation, he said.

“The upshot is that further monetary easing is still likely to be required,” Thieliant said.

The government unveiled a draft of its growth strategy this week, promising to push for “growth-oriented corporate tax reform” as investors look for a schedule for reductions in the levy.

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