Tokyo - Bank of Japan Governor Haruhiko Kuroda said he remains on standby to adjust monetary policy if needed after the policy board on Wednesday maintained record stimulus.
With underlying price trends unchanged in the world’s third-largest economy, Kuroda said further action at this point was unnecessary. The BOJ kept a pledge to boost the monetary base at an annual pace of 80 trillion yen ($670 billion), as forecast by economists.
A pickup in exports that’s supporting production reduces the urgency for additional easing even as inflation is poised to slow further as the slump in oil prices filters through the economy. The central bank will continue to monitor risks to achieving its 2 percent price target, Kuroda said.
“It will be difficult for the BOJ to stand pat if core CPI gains keep slowing on oil price declines as that would affect inflation expectations,” said Hideo Kumano, economist at Dai-ichi Life Research Institute and a former BOJ official. The central bank may have to ease further in October, Kumano said, while other economists have predicted a move as early as April.
The Nikkei 225 Stock Average advanced 1.2 percent on Wednesday after closing above 18,000 on Monday for the first time since July 2007. The yen strengthened against the dollar after the BOJ’s decision before giving up the gains to trade little changed at 119.24 at 4:52 p.m. in Tokyo.
Kuroda said movements in the yen aren’t bad for Japan’s economy as long as they reflect fundamentals. It’s desirable for exchange rates to be stable and reflect fundamentals, he said.
Better assessment
The BOJ’s commentary on Japan’s overseas shipments and industrial output was more upbeat than last month. Exports and production have “been picking up”, the statement said. In January, the central bank said exports had “shown signs of picking up” while output had “bottomed out”.
Big exporters earnings have been lifted by the yen’s 29 percent decline since Prime Minister Shinzo Abe took office in December 2012 with pledge to reflate the world’s third-biggest economy. Toyota Motor Corporation this month forecast a record profit for the year ending in March that tops the combined estimated profits at Volkswagen AG and General Motors in 2014.
The strength in the stock market and among large exporters belies challenges the BOJ faces in keeping the economy on track for recovery after a sales-tax increase in April precipitated a recession last year.
A pickup in consumer spending has been slow as households face costs of living that are rising faster than their incomes. Cash earnings rose 1.3 percent in December from a year earlier, lagging a 2.4 percent increase in consumer prices.
Yen impact
Ichibanya Company, which runs a nationwide restaurant chain, cited the weak yen for its plans to increase prices of toppings for curry rice by as much as 16 percent from March to deal with higher costs of food, personnel and utilities.
BOJ policy makers view further monetary easing to shore up inflation as a counterproductive step for now, amid concern it could trigger declines in the yen that damage confidence, people familiar with the talks said last week.
The tumble in energy prices contributed to a slowdown in the central bank’s main inflation gauge to 0.5 percent in December, below the 2 percent target that Kuroda aimed to reach in about two years when he began record asset purchases in April 2013.
Kuroda said last month cheaper oil will boost the economy and help fuel consumer price gains in the future, even if it may delay achieving the inflation goal beyond the year starting in April.
Kuroda will hold a post-decision briefing at 3.30pm in Tokyo.
Stimulus forecasts
Twenty-six of 35 economists forecast the BOJ will expand stimulus by the end of October, according to a Bloomberg News survey February 5-10. Kuroda pushed through a decision on October 31 to increase easing in the BOJ’s closest vote since 2008.
A below-forecast rebound in growth in the three months ended December 31 after two straight quarters of declines in gross domestic product raised the bar for the economy to reach the BOJ’s estimate for a 0.5 percent contraction in the current fiscal year through March.
An expansion of 8.7 percent this quarter is needed to achieve the BOJ’s growth outlook for this fiscal year, said Barclays PLC economists Kyohei Morita and Yuichiro Nagai, who wrote in a note: “That could be rather difficult.”
‘Too early’
“The growth was probably somewhat disappointing for the BOJ,” said Masayuki Kichikawa, an economist at Bank of America. “Yet, it’s too early for the BOJ to change its outlook significantly. They will be closely watching for a recovery in consumer spending.”
The BOJ is counting on rising inflation expectations and a tighter gap between supply and demand to stoke inflation to the 2 percent target.
To help Kuroda proceed with expansive monetary policy, Abe this month nominated Yutaka Harada, an economics professor and well-known reflationist, to replace Ryuzo Miyao, whose term on the BOJ’s policy board ends on March 25.
Bloomberg