BoJ upgrades view on consumption, rules out early exit from stimulus

TOKYO: The Bank of Japan (BoJ) kept monetary policy steady on Friday and upgraded its assessment of private consumption for the first time in six months, signalling its confidence in an export-driven economic recovery that is gaining momentum.
But Governor Haruhiko Kuroda reassured markets the BoJ will still lag well behind the Federal Reserve in dialling back its massive stimulus programme, with inflation far from reaching his 2 per cent target.
He also shrugged off the need to scrap the BoJ’s pledge to increase its bond holdings at 80 trillion yen (£570.7 billion)per year, even though recent purchases have slowed significantly.
“There’s some distance to achieving 2 per cent inflation, so it’s inappropriate to say now specifically how we will exit our ultra-loose monetary policy, and how that could affect the BoJ’s financial health,” Kuroda told a news conference.
“We will debate an exit strategy only after 2 per cent inflation is achieved and price growth stays there stably.”
As widely expected, the BoJ maintained its pledge to guide short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around zero under its yield curve control (YCC) programme.
Relishing recent bright signs in the economy, the central bank upgraded its view on private consumption for the first time since December 2016 to say it has shown “increased resilience.” That was a more upbeat view than the previous meeting in April, when it said spending was resilient.
The BoJ revised up its assessment of global growth and reiterated its optimistic view that Japan’s economy was heading for a moderate expansion.
“The BoJ has grown confident on the economy, although it is fully aware inflation remains low despite a tightening labour market,” said Izuru Kato, chief economist at Totan Research.
“Unless inflation accelerates unexpectedly, the BoJ will likely stand pat on policy at least until next April when Kuroda serves out his current term.”
Consumption has been a soft spot in Japan’s otherwise strengthening economy, with its weakness blamed for keeping inflation subdued by discouraging companies from raising prices.
Growing signs of life in Japan’s economy have presented a fresh communication challenge for the BoJ, pushing it to be clearer with markets on how it might withdraw its stimulus — without sounding as if such an action is imminent.
Inflation remains disappointingly low, making BoJ officials wary of releasing too much detail on how the bank may exit its ultra-loose policy in the future. — Reuters