BOJ seen holding rates as tankan signals softer outlook

Thu Apr 3, 2014 2:38am EDT
 
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan is expected to stand pat on monetary policy and maintain an upbeat view of the economy next week, unfazed by corporate-sector concerns a sales tax hike may dent growth and delay a sustainable exit from deflation.

Market expectations for additional stimulus in coming months were kept alive when the central bank's "tankan" survey showed companies forecast a worse chilling effect from the tax hike, which kicked off this month, than they did with the previous increase in the tax in 1997.

But central bankers have focused on brighter spots in the survey, pointing to signs of decreasing slack in the economy that would help them meet their pledge of accelerating inflation to 2 percent by around April next year.

"I don't think the BOJ puts much importance on the worsening outlook sentiment. It's a risk, but the tankan's outlook index tends to exaggerate pessimism," said Masaaki Kanno, chief Japan economist at JPMorgan Securities.

"Judging from (Governor Haruhiko) Kuroda's recent comments, the BOJ won't act to pre-empt the pain from the tax hike. The timing of its next action pretty much depends on how the data plays out in coming months," he said.

At the two-day rate review ending Tuesday, the BOJ is widely expected to maintain its commitment to increasing base money, its key policy gauge, at an annual pace of 60-70 trillion yen ($578-$675 billion).

The central bank is also likely to stick to its assessment that the economy will recover moderately, despite risks such as the tax hike and sluggish exports.

TANKAN NOT BAD   Continued...

 
Bank of Japan Governor Haruhiko Kuroda speaks during a seminar in Tokyo March 20, 2014. REUTERS/Yuya Shino