March 15th, 2014
by Peter Nielsen, Central Bank News
This week Japan's central bank maintained its goal of boosting the monetary base by an annual 60-70 trillion yen and voiced growing confidence about rising investment and industrial production though it also acknowledged that exports had "recently leveled of more or less".
The Bank of Japan (BOJ), which embarked on an aggressive easing campaign in April 2013 to rid the country of 15 years of deflation, repeated that the economy
"is expected to continue a moderate recovery as a trend, while it will be affected by the front-loaded increase and subsequent decline in demand prior to and after the consumption tax hike."
Japan's government is raising the sales tax rate to 8 percent from 5 percent on April 1 to reduce its deficit and slow down the growing debt, and there is speculation that the BOJ will boost its stimulus to make up for any economic slowdown and to ensure that the bank meets its target of boosting inflation to 2 percent.
However, BOJ officials have often downplayed this speculation, arguing the economy can weather the impact of the tax rise. In 1997, when the sales tax was raised to 5 percent from 3 percent, the economy went into recession.
Last month a key aid to Prime Minister Shinzo Abe told Reuters that the BOJ can wait until summer and evidence on how the economy is handling the impact of the tax rise before it decides whether to ease policy further, a sign that the government is not putting any pressure on the central bank to immediately increase its stimulus measures. Japan's Gross Domestic Product expanded by a lower-than-expected 0.2 percent in the fourth quarter from the third quarter for annual growth of 2.6 percent, still the third quarter in a row with accelerating growth. Japan's consumer prices have been rising since June following 12 consecutive months of deflation though inflation eased slightly to 1.4 percent in January from December's 1.6 percent.
The BOJ repeated that inflation, excluding the impact of the tax rise, is likely to be around 1.25 percent for some time. Japan's exports fell to 5.252 trillion yen in January from December's 6.109 trillion, the lowest since January 2013. The BOJ said, repeating last month's statement:
"Overseas economies - mainly advanced economies - are starting to recover, although a lackluster performance is still seen in part."
The yen has been weakening since October 2012 - it was trading at 78 to the U.S. dollar on Oct. 1, 2012 - through 2013 when it ended at 105.28 to the dollar. This year it has firmed slightly but has remained above 100 to the dollar and was trading at 103.35 to the dollar earlier today.
In April last year, the BOJ said it aimed to expand Japan's monetary base to 270 trillion yen by the end of 2014 from 138 trillion at the end of 2012. By the end of 2013, the monetary base was projected to rise to 200 and in a separate statement today the BOJ said it hit 202 trillion by the end of December 2013 and 205 trillion by the end of February.