Roundup: Japan's central bank holds off on fresh easing but oil glut weighs on inflation goal

The Bank of Japan (BOJ) on Wednesday decided to keep its monetary policy unchanged and moderately raised its view of some economic conditions as the nation slowly edges out of recession, but decreasing oil prices continue to weigh on the bank's efforts to comprehensively reverse decades of deflation.

The central bank's nine-member policy board following a two-day meeting voted 8 to 1 to maintain the size of the bank's annual asset purchases at 80 trillion yen (670 billion U.S. dollars) and largely kept its assessment from last month that the "economy has continued its moderate recovery trend."

Board member Takahide Kiuchi, who voted down the massive easing by the bank on Oct. 31, said the bank should only maintain its ultra-loose policy during the two-year duration from April 2013 in order to not overstretch itself -- a notion voted down by the rest of the board.

The BOJ in its statement on the economy this month, removed all reference to last April's tax hike, which battered consumer sentiment, exports, corporate investment and manufacturing output, and subsequently forced the nation into a technical recession.

However, in a sign the central bank believes the economy has escaped the downside effects of the tax levy, the BOJ in its statement released Wednesday removed the wording from last month's assessment, which stated that "the effects of the tax increase had been waning on the whole."

While the latest assessment is slightly more upbeat than last month's, economists have been quick to point out that Japan's economic growth data for the last quarter, released on Monday and following two quarters of contraction, was, at just 2.2 percent expansion, far lower than median economists' forecasts, and revealed that both corporate and consumer spending were both still fragile.

The bank said, however, it is still on track to achieve its 2 percent inflation target, but decreasing demand and specifically falling oil prices have taken a toll on the inflation rate, with analysts predicting that the BOJ may deem it necessary to intervene in currency markets again at some point, with huge amounts of cash, in order to hit its inflation target.

With the global oil glut causing a sharp fall in prices, analysts are of the opinion the bank will have to be more aggressive if it wants to bring its 2 percent inflation goal to fruition within the time frame the bank has outlined.

"The bank seems to continue to take the on-going decline in the CPI inflation rate as a temporary phenomenon. We continue to think it inevitable for the bank to take additional easing actions by autumn as actual inflation rates are underperforming the bank's projection after the middle of the year," Hiromichi Shirakawa, an economist at Credit Suisse, was quoted as saying.

Other analysts opined that an ongoing decline in oil prices could essentially take consumer prices to zero by July, which will become apparent in August, and this could be compounded and complicated by the fact that there's a presidential election scheduled for the ruling Liberal Democratic Party in September.

While the bank noted that consumer prices grew at their lowest pace in 18 months in December, the BOJ said that the downward pressure on prices was probably "temporary" and the recovering economy would ensure an eventual uptick in price trends. Consumption could also be raised by increasing salaries, the bank noted, saying it was closely following annual wage negotiations.

The bank also said that exports and industrial production had shown signs of picking up, aided by an improvement in overseas economies and that this would likely translate into further improvements in other areas of economic activity.

That said, local economists here remained cognizant of the fact that last month the bank slashed its inflation outlook to 1.0 percent from 1.7 percent, as measured by the core CPI, due to tumbling oil prices.

The bank said however, it believes the oil glut will be "short- lived" and that prices will return to normal and hence talk of missing its inflation target and unleashing more quantitative easing measures were, for now, premature. Endi