Monday, July 14, 2014

BOJ maintains policy stance, trims 2014 growth forecast

    Japan's central bank maintained its monetary policy stance but trimmed its forecast for economic growth in the current fiscal year while it maintained the forecast for the next two years along with its forecast for inflation.
    The Bank of Japan (BOJ), which aims to double the monetary base via asset purchases to boost inflation, cut its forecast for Gross Domestic Product growth in fiscal 2014, which began on April 1, to an average 1.0 percent from the April forecast of 1.1 percent but maintained the forecast for growth in fiscal 2015 of 1.5 percent and growth of 1.3 percent in fiscal 2016.
    The forecast for consumer price inflation - excluding fresh food but including the effect of the rise in consumer taxes on April 1 that was expected to dent economic growth - was maintained at 3.3 percent in fiscal 2014, 2.6 percent in fiscal 2015 and 2.8 percent in fiscal 2016.
    Excluding the effects of the rise in consumption taxes to 8 percent, the BOJ forecasts inflation of 1.3 percent this year, 1.9 percent in 2015 and 2.1 percent in 2016, confirming its view that its aggressive monetary easing started in April 2013 will help it it overcome almost 15 years of deflation.
    In its statement following a two-day meeting by the policy board, the BOJ repeated that it will continue with its Quantitative and Qualitative monetary easing (QQE) for as long as necessary to reach its target of 2 percent inflation and "make adjustments as appropriate."
    As usual, the BOJ tweaked its description of the economy's performance but maintained the essence by saying the economy was continuing to "recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed."
    Japan's Gross Domestic Product jumped by 1.6 percent in the first quarter of this year from the previous quarter for annual growth of 3 percent, up from 2.5 percent, as consumers spent ahead of the first tax rise in Japan in 17 years.
    The BOJ expects growth in the second quarter to ease as consumers react to the higher tax, with the impact reflected in the slight downward revision in the growth forecast for this fiscal year. But the unchanged forecast for next year shows it remains confident that any slowdown is temporary.
    Japan's headline inflation rate rose to 3.7 percent in May from 3.4 percent in April while the core rate, which excludes fresh food prices and is targeted by the BOJ, rose to 3.4 percent in May from 3.2 percent.



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