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The Bank of Japan (BOJ) on Wednesday opted to maintain its accommodative monetary policy and hold off on additional easing despite sluggish exports and falling commodity prices threatening to derail the bank's ambition 2 percent inflation target next year.
In the wake of an economic contraction last quarter and predictions by leading economists of further downside pressure to Japan's economy from a slowdown in overseas economies particularly in Asia, falling oil prices and the possible fallout from a rate hike from the U.S. Federal Reserve, the bank still maintained its assessment that the economy "has continued to recover moderately," despite the slowdown in emerging economies.
With core consumer prices here down 0.1 percent in August from a year earlier, marking the first drop since the bank unleashed its massive stimulus program more than two years ago and following Japan's production slipping 0.5 percent from a month earlier in August, some economists thought the bank would unveil fresh easing measures this month, doubly so in light of recent concerns voiced by the International Monetary Fund (IMF) about the nation's fiscal health.
But BOJ Governor Haruhiko Kuroda in a press briefing after his policy board's two-day meeting was upbeat about the bank's reflationary efforts and what the board deemed to be an overall moderate economic recovery.
"The trend of consumer rises is rising steadily and there is absolutely no change to our stance that we will steadily implement quantitative and qualitative easing to achieve the 2 percent inflation target at the earliest possible time," the BOJ chief said.
He added that the bank was still on track to hit its delayed 2 percent inflation target within six months from April next year, with September slated as an optimum target, although alluded to the possibility of more timeframe adjustments owing to fluctuating oil prices.
The BOJ in a statement said it would continue to increase the monetary base at an annual pace of 80 trillion yen (700 billion U. S. dollars), with the bank stating that advanced economies were still propping up markets, while emerging economies continued to weigh, with Kuroda himself reiterating Wednesday his long-held mantra that the bank wouldn't hesitate to adjust its policy if necessary, while shrugging of the likelihood of a prospective economic contraction in the July-September period as indicated by recent sluggish manufacturing output and export data.
The consensus among leading economists is that the BOJ is close to adjusting its monetary policy to counter the current downside pressure to the world's third-largest economy and maintain investor confidence, but is holding off to assess a final batch of macroeconomic data as well as liaise with Prime Minister Shinzo Abe who has recently launched a second round of Abenomics economic policy measures ahead of reshuffling his cabinet earlier Wednesday to shift the government's focus back to the economy from security issues.
"I see a very good chance for the BOJ to ease later this month. It's wrong to think the BOJ is not close to easing from today's statement. It's not they are keeping their view but it's more like they want to see more data before making any change," Kyohei Morita, chief economist at Barclays Plc., said.
Similarly, Yasunari Ueno, chief market economist at Mizuho Securities, said while this month's decision was in line with some experts' expectations, policy changes were expected imminently.
"The decision came as expected. I still expect the BOJ will ease policy further later this month. If the BOJ stands pat later this month even as it cuts its bullish forecasts, investors would take it as a sign its commitment to hit 2 percent inflation has weakened," Ueno said.
