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The Bank of Japan headquarters in Tokyo. (Bloomberg) |
TOKYO (AFP) ― The Bank of Japan on Thursday stuck by its view that the world’s No. 3 economy was recovering, despite a contraction in the second quarter that underlined the damage inflicted by an April sales tax hike.
Policymakers held fire on expanding the BOJ’s vast stimulus program following a two-day policy meeting, although they flagged housing and industrial production as weak spots, along with shaky demand for Japanese exports.
Investors will now turn their focus to a regular post-meeting press briefing from BOJ Gov. Haruhiko Kuroda to see if he hints at future moves to counter the downturn.
Japan’s economy suffered its biggest quarterly contraction since the 2011 quake and tsunami as the levy hike slammed the brakes on growth between April and June, throwing into question plans for another rate increase next year.
The 1.7 percent dip in gross domestic product ― or a 6.8 percent contraction at an annualized rate ― gave the clearest picture yet of the impact of the tax hike.
It also underlined an apparently widening gap between the BOJ’s upbeat view of Japan’s economy and official data.
For the last 20 meetings, the BOJ has held off making any major adjustments to its huge monetary easing plan unleashed in April 2013, despite rising speculation that it would have to act in the wake of the tax rise.
Japan’s top central banker has given little indication he would soon pull the trigger on further stimulus ― similar to the Federal Reserve’s quantitative easing ― saying the impact of the sales tax hike has not been as bad as expected.
However, Kuroda has pledged to take further action if necessary, after he was tapped by Prime Minister Shinzo Abe as a key player in Tokyo’s bid to stimulate the laggard economy.
On Friday, the BOJ statement pointed to a decline in the real-estate sector and said factory output has “recently shown some weakness” ― a term it also applied to exports.
But it also noted that employment and wage growth were “improving steadily.”
“Japan’s economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed,” it said, echoing earlier statements.
It added that it expected the negative impact of the rate rise “to wane gradually.”
