BoJ holds fire as it faces calls for exit from monetary easing
TOKYO: The Bank of Japan held steady on monetary policy yesterday as questions mount about when the central bank will start pulling the plug on its massive monetary easing campaign.
Policymakers said the world’s number three economy was picking up and they decided to leave an 80 trillion yen (US$719 billion) annual asset-buying scheme unchanged – days after the US Federal Reserve hiked interest rates and signalled further tightening.
The dollar was at 111.20 yen in afternoon trade, up from levels around 111 yen before the announcement.
Japan’s central bank has not made a significant move for the past five policy meetings, as the economy enjoys its longest run of expansion for more than a decade.
But the growth trend has been shaky and consumer prices remain way below the BoJ’s two per cent inflation target.
The central bank now expects to reach its inflation target by 2019 – four years later than originally planned – and economists are increasingly doubting if it has the tools to achieve its promise.
The price target is a cornerstone of efforts to reverse years of slow growth and deflation that followed the collapse of an equity and property market bubble in the early 1990s.
BoJ governor Haruhiko Kuroda, who will speak to reporters later Friday, has said he would not slow down his monetary easing programme until it achieves the inflation goal.
With concerns about the BoJ’s bloated balance sheet being raised even in the national Diet (parliament), the market seems to be starting to see the risk that the BoJ might be forced to exit the current policy framework even before inflation improves much. Ryutaro Kono, BNP Pariba economist
But there have been growing concerns about the BoJ gobbling up huge amounts of government bonds central to its easing plan.
“With concerns about the BoJ’s bloated balance sheet being raised even in the national Diet (parliament), the market seems to be starting to see the risk that the BoJ might be forced to exit the current policy framework even before inflation improves much,” BNP Pariba economist Ryutaro Kono said in a commentary before Friday’s decision.
The BoJ’s decision to keep its foot on the easing pedal stands in sharp contrast to some of its overseas counterparts including the Federal Reserve, which has been tightening policy as the world’s top economy steadily improves.
Japanese Prime Minister Shinzo Abe swept to power in late 2012 on a pledge to conquer deflation and create a lasting recovery through a growth plan dubbed Abenomics.
The scheme – a mix of aggressive monetary easing and huge government spending along with reforms to the economy – stoked a stock market rally as it weakened the yen and fattened corporate profits.
But its effect on the wider economy has been less dramatic, with promised reforms slow in coming. — AFP