Japan’s factories, retailers post strong growth; central bankers flag stimulus reduction

Japan’s factories and retailers posted better-than-expected growth activity in November, while minutes from the central bank’s last policy meeting show board members are raising the prospect of reducing stimulus.

The firm data and suggestions of a shift away from the Bank of Japan (BOJ)’s crisisera policies on Thursday come as the outlook for the world’s third-largest economy goes from strength to strength.

Data shows that Japanese companies have forecast a further increase in industrial production throughout December as robust overseas demand continues to support factory activity and broader economic growth.

Some BOJ board members are encouraging debate about raising rates or lowering purchases of exchange-traded funds in response to the improving outlook, a summary of opinions expressed at last week’s policy meeting shows.

If the outlook for prices and the economy is expected to improve, the BOJ will need to consider whether “adjustments in the level of interest rates will be necessary,” one board member said.

Another board member said that the BOJ should examine policy effects and possible side effects of exchange traded funds purchases from “every angle” because of rising stock prices and earnings.

Japan’s growth this year has exceeded some economists’ expectations and its stock markets have rallied due to rising corporate earnings, causing some traders to question whether the BOJ should rein in its aggressive monetary easing.

“Consumer spending is doing well, supported by rising stock markets. The BOJ’s policy focus is on interest rates, so it is only natural to question its purchases of risk assets.” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

The summary of opinions does not identify individual speakers and it is unclear whether a majority of the BOJ’s nine-person board shares these views.

Governor Haruhiko Kuroda said clearly last week that as long as consumer prices remain distant from the BOJ’s 2 percent inflation target, he does not want to raise rates.