BOJ to maintain stimulus; exports seen as a concern

Mon Mar 10, 2014 12:37am EDT
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By Stanley White

TOKYO (Reuters) - The Bank of Japan is expected to maintain its massive monetary stimulus on Tuesday on a view the economy can weather a sales tax increase in April without extra support, although there is expected to be some concern about weakness in exports.

The BOJ board can point to strength in industrial output, labor demand and consumer spending to back its view the economy will continue a gradual recovery and its 2 percent inflation target is achievable over the next 12 months or so.

There is some concern within the BOJ about slow exports, but pessimists are not expected to have the numbers to tip the votes toward a downgrade of the central bank's stance that export growth will eventually rebound.

"The BOJ can continue to argue that the underlying recovery is ongoing and that excess slack in the economy is decreasing," said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. "We do not expect any major moves."

After its two-day meeting ends on Tuesday, the central bank is widely expected to maintain its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($590-$690 billion).

The BOJ launched the stimulus last April, saying it would lift inflation to 2 percent by around two years via aggressive asset purchases as it sought to end 15 years of deflation.

A Reuters poll last month showed economists expect the BOJ to ease policy further around the middle of the year, as they say it will otherwise be difficult to meet the inflation target.

SALES TAX IMPACT   Continued...

A man walking past a building is reflected in a sign board of the Bank of Japan building in Tokyo January 22, 2014. REUTERS/Yuya Shino