Bank of Ja­pan holds off on ex­pand­ing stim­u­lus pro­gram

The China Post - - WORLD BUSINESS -

The Bank of Ja­pan (BOJ) held fire Wed­nes­day on ex­pand­ing its al­ready huge stim­u­lus pro­gram, de­spite mount­ing pres­sure on pol­i­cy­mak­ers from slug­gish growth and stag­nant prices.

The de­ci­sion fol­lows dis­ap­point­ing data that has raised ques­tions about the ef­fec­tive­ness of Prime Min­is­ter Shinzo Abe’s drive to kick­start the econ­omy, which con­tracted in the sec­ond quar­ter of the year.

It also comes a day af­ter the In­ter­na­tional Mon­e­tary Fund low­ered its growth forecast for this year and next, call­ing on author­i­ties to work harder to slash a na­tional debt that is more than twice as big as gross do­mes­tic prod­uct (GDP).

On Wed­nes­day the BOJ main­tained its re­cent rhetoric on the state of the econ­omy, say­ing in a state­ment it “has con­tin­ued to re­cover mod­er­ately, although ex­ports and pro­duc­tion have been af­fected by the slow­down in emerg­ing economies.”

Look­ing ahead, it re­peated: “Ja­pan’s econ­omy is ex­pected to con­tinue re­cov­er­ing mod­er­ately.”

The yen firmed against the U.S. dol­lar af­ter the an­nounce­ment. The green­back bought 119.90 yen, com­pared with 120.28 yen in New York.

Bank gover­nor Haruhiko Kuroda later in­sisted in­fla­tion was on a ris­ing trend, although he ad­mit­ted that “whole­sale prices are de­clin­ing to some ex­tent” due partly to falls in oil prices.

Asked if the BOJ was ready to take fresh eas­ing mea­sures, Kuroda re­peated: “We will ex­am­ine both up­side and down­side risks to eco­nomic ac­tiv­ity and prices, and if nec­es­sary we will take ad­di­tional mea­sures with­out hes­i­tat­ing.”

While econ­o­mists had ex­pected the bank to main­tain its cur­rent 80 tril­lion yen (US$665 bil­lion) an­nual as­set-buy­ing scheme at Wed­nes­day’s meet­ing, at­ten­tion is now fo­cused on a gath­er­ing at the end of the month, with spec­u­la­tion it will act then.

Abe in April 2013 un­veiled a plan to kick­start the econ­omy and bring an end to painful de­fla­tion with a vast gov­ern­ment spend­ing pro­gramme and a cen­tral bank as­set­buy­ing pro­gram — or quan­ti­ta­tive eas­ing — dubbed “Abe­nomics.”

While the scheme showed early prom­ise, with stocks surg­ing and growth ad­vanc­ing, re­cent weak data has raised ques­tions about its ef­fec­tive­ness as con­sumer prices stag­nate and eco­nomic growth re­mains tor­pid.

Another part of the scheme — re­forms to cut red tape in the highly reg­u­lated econ­omy — has also stalled. Ex­perts say Abe’s push to pass highly un­pop­u­lar se­cu­rity leg­is­la­tion last month could make it even harder to en­act re­forms due to sag­ging public sup­port.

Asked about his view on Abe’s re­cent pledge to boost Ja­pan’s nom­i­nal eco­nomic growth by 20 per­cent to 600 tril­lion yen (US$5 tril­lion) by 2020, Kuroda said “it’s doable but chal­leng­ing,” not­ing painful re­forms are the key.

The IMF es­ti­mated in its semi-an­nual World Eco­nomic Out­look that Ja­panese growth this year would hit 0.6 per­cent, fol­lowed by 1.0 per­cent ex­pan­sion in 2016.

That com­pares with pro­jec­tions ear­lier this year for 0.8 per­cent and 1.2 per­cent re­spec­tively.

Data last week showed spend­ing among Ja­panese house­holds re­bounded in Au­gust, of­fer­ing a glim­mer of hope af­ter a string of week fig­ures, but econ­o­mists warned the world’s num­ber three econ­omy was still headed for re­ces­sion.

Fac­tory pro­duc­tion fell un­ex­pect­edly for a sec­ond month in Au­gust, while con­sumer prices dropped for the first time in more than two years, ac­cord­ing to data last month.

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