Bank of Japan likely to expand asset buying by summer

Fri Feb 21, 2014 5:22am EST
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By Kaori Kaneko

TOKYO (Reuters) - The Bank of Japan is expected to ease policy further by this summer to help boost the economy and pull it out of a 15-year deflation, as the effects from Prime Minister Shinzo Abe's stimulus strategy loses momentum, a Reuters poll showed.

Economists in the survey also remain skeptical that the central bank will achieve its 2 percent inflation target in the year from April 2015.

Just as the world's third-largest economy is about to hit headwinds from an April sales tax hike, growth is already coming in well below expectations on sluggish exports and lackluster consumer spending and capital expenditure.

Japan's economy grew at a much slower pace than expected in the fourth quarter, expanding at an annual 1.0 percent rate, well below the median forecast of 2.8 percent.

Given the prospect that the positive effects could be fading from Abe's unprecedented monetary stimulus and huge fiscal spending, expectations are rising that the BOJ will have to increase its enormous purchases of bonds and other assets.

"Economic data which reflects the sales tax effects will come out around July-September," said Takumi Tsunoda, senior economist at Shinkin Central Bank.

"They will likely underscore that the pace of rise in prices and growth rate won't accelerate. The sales tax will rise even as wages barely increase. So this will impact purchasing power."

Eleven of the 14 analysts surveyed said the BOJ would increase its asset purchasing program by the summer. Four said the central bank would expand the amount in July; two said April, July-September and in October, respectively.   Continued...

Bank of Japan Governor Haruhiko Kuroda scratches his head as he listens to questions from a reporter during a news conference at the BOJ headquarters in Tokyo February 18, 2014. REUTERS/Yuya Shino