BOJ keeps stimulus in place, downgrades exports in warning sign

Tue Mar 11, 2014 12:18am EDT
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By Stanley White and Tetsushi Kajimoto

TOKYO (Reuters) - The Bank of Japan maintained its massive monetary stimulus on Tuesday on the view that growth in the economy and consumer prices remains on track, but it downgraded its view of exports in a warning that external demand will continue to disappoint.

The BOJ did upgrade its view of capital expenditure and turn more optimistic about industrial production, showing more confidence in domestic demand before a sales tax increase scheduled for April 1.

However, this optimism is unlikely to ease concerns that domestic demand will weaken after the tax hike and that exports will not be strong enough to support growth, which could increase calls for more monetary stimulus.

"It is not an atmosphere where the BOJ will ease immediately even if it downgrades growth forecasts as core consumer prices have been hovering in a range higher than previously expected," said Junko Nishioka, chief economist at RBS Securities.

"If the yen appreciates sharply and share prices plunge due to geopolitical risks, including the Ukraine, the BOJ will have to move."

As expected, the central bank on Tuesday maintained 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 within around two years via aggressive asset purchases as it sought to end 15 years of deflation.

BOJ Governor Haruhiko Kuroda will hold an embargoed news conference from 3:30 p.m. (0630 GMT) with his comments expected to come out any time after 4:15 p.m. (0715 GMT).   Continued...

A security guard salutes at the entrance of the Bank of Japan building in Tokyo January 22, 2014. REUTERS/Yuya Shino