BOJ keeps policy steady despite recession, sees capex rebound

19 Nov 2015 | Author: | No comments yet »

Bank of Japan holds fire on stimulus despite recession.

TOKYO — The Bank of Japan left its monetary stimulus unchanged on Thursday, indicating that the second recession since Prime Minister Shinzo Abe took office isn’t enough to alter Governor Haruhiko Kuroda’s view that the inflationary trend is improving. The BoJ’s decision to keep already unprecedented stimulus unchanged was forecast by all 41 economists in a Bloomberg survey and comes days after a report showing Japan fell back into a recession in the six months through September. Japan’s central bank held fire on expanding its monetary easing programme even as the world’s third-largest economy slipped into its second recession in two years and monthly exports fell. Haruhiko Kuroda on Thursday brushed aside Japan’s recent recession, saying it wasn’t due to weaker demand but inventory adjustments, although he signaled concern over wages and capital spending.

Kuroda said that a 0.8% shrinkage in Japan’s July-September gross domestic product was “mostly” due to a reduction in inventories. “Final demand grew quite strongly” in the third quarter, meaning that the “situation is very different” from the previous three months, when GDP decreased 0.7%, he said. Economists are divided into two camps – one expecting further easing early next year and another projecting no further action for the foreseeable future. “The BOJ is already doing massive easing, and I don’t think they want to do more because the additional impact will be limited,” said Maiko Noguchi, an economist at Daiwa Securities Group Inc and a former official at the central bank. Some analysts anticipate the BoJ will be forced to expand its massive 80 trillion yen ($665 billion) annual asset-buying scheme, launched more than two years ago to kickstart growth and end deflation — the chronic decline in prices that has sapped growth for years. Twenty-one of 41 economists surveyed forecast the bank will add stimulus by April 2016 while 19 don’t expect additional stimulus, according to the poll conducted from Nov 13-17. Asked about his views on the consecutive declines in GDP growth — the technical definition of a recession — BoJ Governor Haruhiko Kuroda told a news conference that the economy is better than the figures suggest.

Kuroda said some indicators on capital investment have been “weak” recently, in contrast with past corporate surveys suggesting that firms are eager to bolster spending this year. “Compared with their bullish investment plans, I feel that actual capital spending is being delayed a little,” he said. And in data released earlier Thursday, the finance ministry announced that exports declined in October for the first time in more than a year, as economic growth in giant neighbour China slows.

Also, wage growth has been sluggish, and it is possible that the recent lack of change in consumer price indexes could affect the future direction of wages and inflation, he said. Overseas shipments by value declined 2.1 percent, the first fall since August of last year, while the value of exports by Japanese companies to China shrank 3.6 percent in October, the ministry said, as growth in the world’s second-largest economy slows. “Japan’s economy has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies,” the bank said in a statement Thursday. “Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, although some indicators have recently shown relatively weak developments,” it said in the dry, carefully phrased language of global central banks. The BoJ last month was forced to cut its growth outlook and pushed back the timeline for a key inflation target as earlier, more optimistic predictions failed to come true.

The US central bank is expected to raise interest rates, based on comments by Fed officials who held out the possibility of a December rate increase.

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