BOJ on hold despite grim GDP, Kuroda avoids criticising PM Abe on tax delay * BOJ maintains massive stimulus as widely expected * BOJ sticks to view economy recovering moderately * Tax-hike proponent Kuroda wont be drawn on Abes delay * Board member Kiuchi dissents, disapproves Oct. 31 easing * Weak GDP may force BOJ to cut growth forecast in Jan The Bank of Japan kept monetary settings and its upbeat economic view unchanged on Wednesday in the wake of data showing the economy has slipped into recession, preferring to spend more time to gauge the effect of its surprise easing last month. BOJ Governor Haruhiko Kuroda avoided criticising Prime Minister Shinzo Abes decision on Tuesday to delay a tax increase that the central banker had supported as a needed budget-balancing step. As widely expected, the BOJ voted to continue its purchases of government bonds and risky assets, maintaining its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen ($683 billion). Japans economy continues to recover moderately as a trend, although some weaknesses remain mainly in output, the BOJ said in a statement after its policy meeting. It raised its view on exports to flat from weakening. Board member Takahide Kiuchi, a sceptic of the current quantitative easing programme, dissented to the policy decision in a show of his continued disapproval to last months surprise monetary easing that was made by a closely split vote. The meeting came in the wake of data on Monday which showed the worlds third-largest economy unexpectedly slipped into recession in the third quarter, as the hit to spending from a sales tax hike in April overwhelmed the impact of massive pump-priming by the BOJ and the government. On Tuesday, Prime Minister Shinzo Abe said he would call an early election to seek a fresh mandate for his economic policies, and postponed a second increase in the tax slated for October 2015 to April 2017. The dismal third-quarter gross domestic product (GDP) data complicates the efforts of the BOJ, which aimed to preempt risks to the inflation outlook by expanding monetary stimulus last month. Kuroda, facing reporters after the BOJ decision, focused on Abes promise to maintain Japans long-term commitment to curbing the heaviest debt burden in the industrial world. Whether to raise the sales tax is something the government and parliament decides, taking into account economic and other conditions, Kuroda said. In general terms, its important for Japan as a nation to maintain market trust in its finances. The government has laid out a medium-term fiscal consolidation plan and has set a clear target ... We hope the government steadily implements measures, based on this plan, to create a sustainable fiscal structure. The second straight quarter of contraction will almost certainly force the BOJ to cut its forecast of a 0.5 percent economic expansion for the current fiscal year at a quarterly review of long-term projections in January, analysts say. Both prices and the economy are undershooting the BOJs forecasts. That will heighten market expectations of further easing, said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. Shinke is among a growing number of analysts who see the economy shrinking in the current fiscal year ending in March 2015, and now projects a 0.8 percent contraction. The postponement of the tax hike compounds problems for Kuroda, who already faces an divided board and markets that are questioning his credibility. The BOJ now gobbles up almost the same amount of government bonds that are issued each month, a move critics describe as tantamount to debt monetisation. The delay in raising the tax stokes worries that the BOJs ultra-easy monetary stance is bank-rolling an alarmingly high public debt, already the highest among major economies.
Posted on: Wed, 19 Nov 2014 07:38:39 +0000
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