Nope, ain’t happening! Despite the recent round of weak economic data from Japan, their central bank officials decided to sit on their hands and maintain their optimistic outlook, based on the latest BOJ statement.
1. No changes in monetary policy
After the recent sales tax hike, the Japanese economy has seen a couple of months’ worth of bleak figures, leading many to price in the possibility of further easing from the BOJ. However, BOJ Kuroda announced that they are keeping their current monetary policy plans unchanged.
Despite that, some analysts are still predicting that the BOJ is bound to ease sooner or later. A survey conducted by Bloomberg revealed that 38% of economists interviewed are expecting further easing from the BOJ this year, down from the last month’s 58%. Many are projecting that the BOJ will ramp up its QE efforts by October.
2. Kuroda stays positive
BOJ Governor Kuroda reiterated that the economy remains on track to continue its moderate recovery and eventually shake off the drag caused by the April sales tax hike. He said that policymakers were able to anticipate the potential drop in spending caused by higher taxes and that the Japanese economy could eventually resume growing beyond its potential growth rate.
Take note, however, that the central bank downgraded its growth forecast for the year from an earlier estimate of 1.1% to 1.0%. Talk about giving mixed signals!
3. Japan on track to achieve inflation target
As for inflation, Kuroda expressed confidence that core inflation will stay above 1.0%. “I expect there will be a decrease in companies that rely on price discounts to cultivate demand, the sort of behavior that occurred under deflation,” Kuroda said. “Broad-based price increases are expected to become more widespread.”
Economic analysts fear that the BOJ is being too optimistic in this regard, as the jump in core CPI for the past couple of months has partly been spurred by the tax hike. “The BOJ has appeared to remain complacent with risk of the economy suffering a downward shift of households’ propensity to consume toward the year-end,” according to a Credit-Suisse report.
Wage growth has also failed to stay in pace with price increases, as real wages are down 3.6% on a year-over-year basis, potentially weighing on spending and inflation later on.
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