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BOJ holds pat on further easing, on course for 2 pct. inflation target

English.news.cn   2014-04-30 20:07:57

TOKYO, April 30 (Xinhua) -- The Bank of Japan (BOJ) said Wednesday that the nation is on course to hit its inflation target next fiscal year following the bank unfolding its large scale, ultraeasy monetary easing policy in April 2013.

BOJ Governor Haruhiko Kuroda said that the trimming of its growth estimate for the current fiscal year was in line with its expectations as part of the fallout from the April 1 tax hike from 5 to 8 percent, and maintained that the central bank's plans to reverse deflation in two years was still on course.

The central bank now expects the world's third-largest economy to expand 1.1 percent for the year through March 2015, revised down from the 1.4 percent growth it estimated in January.

But the bank's chief believes the bank is on course for reversing the economic fortunes of a nation mired in decades of deflation, stating that adjustments would be made if necessary, but giving no indications of further easing measures.

"The BOJ is on a steady course but still halfway to attaining the inflation target and we will make adjustments if necessary after assessing both upside and downside risks, especially overseas factors," Kuroda told a news conference in Tokyo after the BOJ's one-day policy meeting.

The BOJ policy board members voted unanimously to maintain its current plan for an annual increase in the monetary base of between 60 trillion yen and 70 trillion yen (683 billion U.S. dollars), with purchases of government bonds and other assets.

The bank said that it expects the nation's consumer prices to rise by around 2 percent in fiscal 2015 and 16 and said that core consumer prices, excluding fresh food, will likely increase 1.9 percent in the next fiscal year and by 1.9 percent for fiscal 2016.

The figures, comprising part of the bank's semiannual outlook report, do not take into account the impact of the two-phased tax hike that was launched April 1.

The central bank revised downward its growth outlook for the domestic economy in fiscal 2014 to an expansion of 1.1 percent in terms of real gross domestic product, from a rise of 1.4 percent projected in January, citing "a delay in export recovery."

Earlier Wednesday the government said that Japan's industrial production rose 0.3 percent on month in March as firms tapered their output due to the April 1 tax hike. The figure came in lower than median economists' expectations for a 0.5 percent increase, and pointed to the fragility of Japan's economic revival, analysts said.

However, the BOJ still expects the economy to grow 1.5 percent in fiscal 2015 and 1.3 percent in fiscal 2016.

The BOJ is seemingly optimistic that the economy can continue to recover without the need for additional stimulus and can weather the storm that the consumption tax hike has and will continue to create, as consumer and corporate sentiment wanes.

The bank also sees the job market as improving in twine with the government's plan to increase standard wages that will aid the bank in hitting its 2 percent inflation target.

According to the latest figures, wages rose 0.7 percent in the year to March, marking the first increase in three months. Regular pay declined however for the 22nd straight month as firms continue to struggle to fully commit to upping core pay.

Regular pay decreases was something the BOJ must pay heed to, analysts said, as if wages don't catch up with inflation, the impact of the tax hike could become amplified.

"July will be key for the BOJ to judge if additional stimulus is needed. It's possible the sales tax will be a drag for a prolonged period as wage growth isn't catching up with inflation," said Takeshi Minami, chief economist in Tokyo at Norinchukin Research Institute Co.

The BOJ drew support however from core consumer inflation in Tokyo, a leading key indicator of future trends nationwide, jumping to a 22-year high of 2.7 percent in April, meaning that some companies are successfully passing on the latest tax hike to Japanese consumers.

Analysts believe the BOJ will likely maintain its projections made three months ago that core consumer inflation will hit 1.3 percent in the current fiscal year to March 2015 and gain 1.9 percent the following year, excluding the effect of the tax hike.

For fiscal 2016, the BOJ is expected to project core consumer inflation will reach or slightly exceed 2 percent, analysts have said, in a sign the bank is confident its price target will be achieved and sustained.

Editor: Fu Peng
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