HONG KONG (MarketWatch) — The Bank of Japan said Thursday that the economy will chart a path of moderate recovery despite global economic uncertainty, while leaving its policy interest rate unchanged in the current range of 0% to 0.1% by a unanimous vote.
The central bank also reaffirmed it will steadily increase the size of its asset-purchase program. The BOJ didn’t announce an increase in the overall size of the program but made an adjustment in the composition of the stimulus provided.
The bank said it will increase purchases of certain short-term securities by 5 trillion yen ($62.9 billion), while reducing the amount allocated toward fixed-rate loans by an equal amount.
The central bank didn’t announce any changes to its purchases of Japanese government bonds.
“Japan’s economic activity has started picking up moderately as domestic demand remains firm, mainly supported by reconstruction-related demand,” the BOJ said in a statement issued at the end of a two-day meeting.
“As for the outlook, Japan’s economy is expected to return to a moderate recovery path as domestic demand remains firm and overseas economies emerge from the deceleration phase,” the central bank said.
The BOJ said that on a year-on-year basis, consumer prices aren’t expected to rise or fall for the time being.
For the current fiscal year ending March 31, 2012, members of the BOJ’s policy-setting board now expect Japan’s gross domestic product to grow 2.2%, lower than the 2.3% expansion they had forecast in April.
The estimates are based on the median of forecasts made by the board members. Their median estimate of core inflation, which excludes all fresh food items from consumer price calculations, was also revised down to 0.2% from the April forecast of 0.3%.
Growth and core inflation estimates for the next financial year were left unchanged at 1.7% and 0.7%, respectively. The yen dropped sharply immediately after the decision but quickly recovered most of those losses.
Although it rose as high as ¥79.93 immediately after the BOJ decision, the dollar USDJPY -0.62% quickly recovered, and was more recently buying ¥79.31, compared with ¥79.67 late Wednesday in North America.
Japanese stocks initially rose as well, but soon moved sharply lower, with the Nikkei Stock Average JP:100000018 -1.48% finishing 1.5% lower, in line with broad stock losses in the region. Read more on Asia Markets.
“As long as the BOJ maintains a positive view on the economy and the inflation trend, we think the Bank is unlikely to increase [the] asset purchase program in haste,” Royal Bank of Scotland economists led by Junko Nishioka wrote in a report, adding that the economic outlook may have to worsen for the central bank to provide more stimulus.
“A drastic change in the external environment, such as the further appreciation of the yen and worse-than-expected development of overseas economies, could be a trigger to prompt the BoJ to take further action,” they said.
The RBS economists described the changes made by the BOJ to its asset purchase program as “just an adjustment” and that it “shouldn’t be considered an additional accommodative measure.”’Capital Economics’ chief global economist, Julian Jessop, however, described the changes in the composition of the asset purchases as amounting to “a marginal easing in policy.”
Even so, “in not announcing further JGB purchases just yet, we suspect that the Board is simply saving its ammunition,” Jessop said.
“Recent economic data from Japan have mostly been weak, but there have been just enough positives to justify a delay.”
Jessop said his research house continues to expect further “substantial easing” from the BOJ later this year as Japan’s “economic recovery disappoints and the crisis in the euro-zone escalates again.”
The Japanese government has also, on several occasions in the past, supported further monetary easing from the BOJ, prodding the central bank to use powerful monetary stimulus, including large-scale asset purchases, to pull the country from a long reign of deflation.
Before the BOJ announced its decision on Thursday, Finance Minister Jun Azumi had called on the central bank to meet its goal of 1% inflation at an “early stage,” according to a Dow Jones Newswires report.
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The central bank also reaffirmed it will steadily increase the size of its asset-purchase program. The BOJ didn’t announce an increase in the overall size of the program but made an adjustment in the composition of the stimulus provided.
The bank said it will increase purchases of certain short-term securities by 5 trillion yen ($62.9 billion), while reducing the amount allocated toward fixed-rate loans by an equal amount.
The central bank didn’t announce any changes to its purchases of Japanese government bonds.
“Japan’s economic activity has started picking up moderately as domestic demand remains firm, mainly supported by reconstruction-related demand,” the BOJ said in a statement issued at the end of a two-day meeting.
“As for the outlook, Japan’s economy is expected to return to a moderate recovery path as domestic demand remains firm and overseas economies emerge from the deceleration phase,” the central bank said.
The BOJ said that on a year-on-year basis, consumer prices aren’t expected to rise or fall for the time being.
For the current fiscal year ending March 31, 2012, members of the BOJ’s policy-setting board now expect Japan’s gross domestic product to grow 2.2%, lower than the 2.3% expansion they had forecast in April.
The estimates are based on the median of forecasts made by the board members. Their median estimate of core inflation, which excludes all fresh food items from consumer price calculations, was also revised down to 0.2% from the April forecast of 0.3%.
Growth and core inflation estimates for the next financial year were left unchanged at 1.7% and 0.7%, respectively. The yen dropped sharply immediately after the decision but quickly recovered most of those losses.
Although it rose as high as ¥79.93 immediately after the BOJ decision, the dollar USDJPY -0.62% quickly recovered, and was more recently buying ¥79.31, compared with ¥79.67 late Wednesday in North America.
Japanese stocks initially rose as well, but soon moved sharply lower, with the Nikkei Stock Average JP:100000018 -1.48% finishing 1.5% lower, in line with broad stock losses in the region. Read more on Asia Markets.
“As long as the BOJ maintains a positive view on the economy and the inflation trend, we think the Bank is unlikely to increase [the] asset purchase program in haste,” Royal Bank of Scotland economists led by Junko Nishioka wrote in a report, adding that the economic outlook may have to worsen for the central bank to provide more stimulus.
“A drastic change in the external environment, such as the further appreciation of the yen and worse-than-expected development of overseas economies, could be a trigger to prompt the BoJ to take further action,” they said.
The RBS economists described the changes made by the BOJ to its asset purchase program as “just an adjustment” and that it “shouldn’t be considered an additional accommodative measure.”’Capital Economics’ chief global economist, Julian Jessop, however, described the changes in the composition of the asset purchases as amounting to “a marginal easing in policy.”
Even so, “in not announcing further JGB purchases just yet, we suspect that the Board is simply saving its ammunition,” Jessop said.
“Recent economic data from Japan have mostly been weak, but there have been just enough positives to justify a delay.”
Jessop said his research house continues to expect further “substantial easing” from the BOJ later this year as Japan’s “economic recovery disappoints and the crisis in the euro-zone escalates again.”
The Japanese government has also, on several occasions in the past, supported further monetary easing from the BOJ, prodding the central bank to use powerful monetary stimulus, including large-scale asset purchases, to pull the country from a long reign of deflation.
Before the BOJ announced its decision on Thursday, Finance Minister Jun Azumi had called on the central bank to meet its goal of 1% inflation at an “early stage,” according to a Dow Jones Newswires report.
marketwatch.com
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