Thursday, August 8, 2013

Japan maintains policy, sees rising inflation expectations

 The Bank of Japan (BOJ) maintained its monetary policy stance but voiced growing confidence about rising inflation, raised the prospect that it may finally be able to escape 15 years of deflation and almost 20 years of economic malaise.
    The BOJ, which embarked on a new phase aggressive phase of monetary easing in April, said "inflation expectations appear to be rising on the whole" and "the year-on-year rate of increase in the CPI is likely to rise gradually," bolstered by the fact that Japan's headline inflation rate rose by 0.2 percent in June, the first month with higher prices in 13 months.
    Last month the BOJ said that some indicators had suggested a rise in inflation expectations and that the year-on-year rate of change in the CPI is likely to turn positive.
    Apart from its growing confidence about inflation, the statement from the BOJ's policy board largely mirrored last month's statement, including the description of the economy as "starting to recover moderately."

    Japan's Gross Domestic Product expanded by 1.0 percent in the first quarter from the previous quarter for annual growth of 0.4 percent, the same pace as in the fourth quarter.
    The BOJ maintained its guidelines for money market operations, saying it aims to increase the monetary base - cash and banks' deposits at the BOJ -  at an annual pace of about 60-7- trillion yen, purchase Japanese government bonds so the amount rises by an annual pace of about 50 trillion along with purchases of exchange-traded funds, Japanese real estate trusts, commercial paper and corporate bonds.
    In July Japan's monetary base expanded 38 percent to 170.39 trillion yen from July 2012, reflecting the continued injections of liquidity into the financial system, with banks' current account balances at the BOJ rising by 116 percent to 82.35 trillion and reserve balances up by 112.5 percent to 73.43 trillion.
    Japan's monetary base is forecast to rise to 200 trillion this year and to 270 trillion at the end of next year.
    The BOJ also maintained its description of the global economy, saying overseas economies are gradually heading toward a pick-up, "although a lackluster performance is partly seen, and exports have been picking up.
    Japan's economy is still expected to "recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies," but there are still a high degree of uncertainty, including Europe's debt problem, developments in emerging and commodity-exporting economies and the pace of recovery in the U.S. economy.
    "The Bank will continue with quantitative and qualitative easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner," the BOJ said, repeating its statement from recent months.
    A majority of BOJ board members forecast last month that Japan's GDP would expand by 2.8 percent in the current fiscal year, which began on May 1, slow to 1.3 percent in fiscal 2014 and then grow by 1.5 percent in fiscal 2015.
    Consumer price inflation is forecast at 0.6 percent this fiscal year, rising to 1.3 percent in 2014 - excluding the effects of the planned consumption tax hikes - and then 1.9 percent in fiscal 2015.
    Japan's prime minister Shinzo Abe plans to decide later this year whether to proceed as planned with a two-stage increase in sales tax. BOJ Governor Haruhiko Kuroda has called on the government to raise the sales tax because it is needed to strengthen public finances, warning that government bond yields could rise - undermining the BOJ's actions - if investors believe that the BOJ is merely financing government spending.

    www.CentralBankNews.info

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