Unfazed by market rout, BOJ to signal confidence on inflation goal

Thu Feb 13, 2014 1:06am EST
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan, unfazed by the latest emerging market rout, is set to stand pat on monetary policy next week and stick to its rosy economic assessment, signaling that any additional monetary stimulus may be some time away.

With markets calming down after the recent turbulence and pessimism over the U.S. and Chinese economies easing, the Japanese central bank sees no need to alter its forecast that exports will emerge from a soft patch in coming months as global demand picks up.

The BOJ is hardly complacent. With the global recovery still fragile, Japanese firms are cautious about boosting wages and capital expenditure enough to make up for a slump in household spending which is expected after a sales tax hike in April.

Still, it is in no mood to tap its depleted policy arsenal unless more evidence suggests its 2 percent inflation target cannot be met without additional stimulus, analysts say.

Markets are focusing on what Governor Haruhiko Kuroda will say in his post-meeting briefing about the recent market turmoil and the fallout for Japan's economic outlook.

"The BOJ's message will probably be a positive one, emphasizing that global economic fundamentals are strong despite the market turbulence," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute in Tokyo.

"It's times like this when policymakers must reassure markets everything is on track. That's what Kuroda will do."

The BOJ is widely expected to maintain its commitment of increasing base money, its key policy gauge, at an annual pace of 60-70 trillion yen ($585-$683 billion).   Continued...

Bank of Japan Governor Haruhiko Kuroda gestures as he listens to questions from reporters during a news conference at the BOJ headquarters in Tokyo January 22, 2014. REUTERS/Yuya Shino