Bank of Japan Holds Fire on Stimulus Despite Recession

November 19,2015
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BoJ Governor Haruhiko Kuroda. (Photo by Thomas Peter/Reuters)

(AFP)--Japan's central bank on Thursday held fire on expanding its monetary easing programme, even as the world's third-largest economy slipped into its second recession in two years and monthly exports fell.

Prime Minister Shinzo Abe has been trying since late 2012 to revitalise Japan's economy through his signature "Abenomics" policies, with aggressive monetary easing by the Bank of Japan (BoJ) at its foundation.

Some analysts anticipate the BoJ will be forced to expand its massive 80 trillion yen ($665 billion) annual asset-buying scheme, launched more than two years ago to kickstart growth and end deflation -- the chronic decline in prices that has sapped growth for years.

But the BoJ opted to do nothing at the end of its two-day policy meeting, as it did last month -- when expectations were even higher it would take action but before news Monday that growth in gross domestic product (GDP) contracted for a second straight quarter.

"While the Bank of Japan literally ignored the renewed fall in (the third quarter) GDP in today's policy statement, we think that a likely moderation in underlying inflation will eventually force policymakers to introduce more stimulus," Marcel Thieliant, Japan economist at Capital Economics said in a statement.

Asked about his views on the consecutive declines in GDP growth -- the technical definition of a recession -- BoJ Governor Haruhiko Kuroda told a news conference that the economy is better than the figures suggest.

Consumer spending is "resilient" and exports broadly positive, meaning that "final demand as a whole is rising", he said.

Gradual recovery path



"This is in line with the evaluation that Japan's economy is on a gradual recovery path."

And in data released earlier Thursday, the finance ministry announced that exports declined in October for the first time in more than a year, as economic growth in giant neighbour China slows.

Overseas shipments by value declined 2.1%, the first fall since August of last year, while the value of exports by Japanese companies to China shrank 3.6% in October, the ministry said, as growth in the world's second-largest economy slows.

"Japan's economy has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies," the bank said in a statement Thursday.

"Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, although some indicators have recently shown relatively weak developments," it said in the dry, carefully phrased language of global central banks.

The BoJ last month was forced to cut its growth outlook and pushed back the timeline for a key inflation target as earlier, more optimistic predictions failed to come true.

Kuroda said the timeline for the central bank's two-percent inflation target "depends on crude oil prices," reiterating that it now expects the achievement will come around late next year or early 2017.

The BoJ's bond-buying scheme has led to a sharp decline in the yen, seen largely as a positive as it can make Japanese products cheaper overseas.

But a lacklustre global economy, characterised by the slowdown in China and weakness in emerging markets, are posing challenges to Abe's play for a recovery.

Last month, the International Monetary Fund cut its growth forecast for the world economy for this year to 3.1% from the previous 3.3%, warning of increasing risks from the slowdown in China.