The Reuters Tankan aligned with the Bank of Japan's closely watched quarterly tankan business survey out earlier this month, which showed big manufacturers' business confidence fell to a nearly three-year low in the quarter to June.
TOKYO:The Bank of Japan decided Friday to stick to its ultra-easy monetary policy, bucking the global trend largely because inflation in Japan isn’t getting close to the central bank’s 2% target.
The decision contrasts with other central banks including the Federal Reserve, which on Wednesday raised its policy rate for the second time this year and set the stage for two more increases in 2018. The European Central Bank on Thursday laid out plans to wind down its giant bond-buying program by the end of this year.
“It is appropriate for Japan to patiently continue current monetary easing,” Gov. Haruhiko Kuroda said at a news conference. “The divergence of monetary policies reflects different economic and price conditions in each country.”
Japan’s core consumer-price index, which excludes fresh food prices, rose 0.7% from a year earlier in April, decelerating for two consecutive months.
Given its distance from the 2% inflation target, it is too early to talk about details of its exit strategy, Mr. Kuroda said. However, as shown by examples at the Fed and ECB, ultralow short-term interest rates and an expanded balance sheet would be the two main issues the BOJ has to deal with when the time comes, he added.
At its last meeting, the BOJ stopped predicting when its target of 2% inflation would be reached. Mr. Kuroda said at the time that he didn’t want the prediction to be interpreted as a promise to take policy actions to meet the target date.
Many economists expect the BOJ to stand pat for now. Economists say the central bank has no immediate need to loosen policy since it has given itself flexibility on the date for reaching 2% inflation and that it is too early to tighten like the Fed when Japanese inflation is weak.
If the BOJ again lowers its price projections at a quarterly review scheduled next month, it might not raise its target for 10-year Japanese government bond yields until around October 2020, a year after the looming sales-tax increase in Japan, said Société Générale chief Japan economist Takuji Aida.
The BOJ, the only major central bank to stay on an easing path, voted 8-1 on Friday to maintain its 10-year yield target around zero and its short-term deposit rate at minus 0.1%. The bank also kept its pledge to buy government bonds at an annual rate of ¥80 trillion ($725 billion).
That pledge is seen by investors as a symbolic gauge of its commitment to easing, although actual purchases slowed down to ¥49 trillion in the year ended March 31, according to the BOJ.
The Japanese central bank also maintained its assessment of the economy, saying it was “expanding moderately.” The economy shrank at an annualized pace of 0.6% in the January-March period, the first contraction in nine quarters, but analysts expect the economy to rebound in the current quarter. - WSJ
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