Roundup: BOJ maintains massive stimulus policy, says consumption showing signs of uptick

The Bank of Japan (BOJ) on Friday decided to maintain its massive monetary easing policy and gave a relatively positive assessment of the state of the economy based on rising consumption and investment as the effects of last year' s tax hike begin to wear off, although issues of the pace of inflation still remain.

The central bank's Policy Board voted at the end of its latest two-day meeting Friday to keep its key policy of increasing base money at an annual pace of about 80 trillion yen (660 billion U.S. dollars) through massive asset purchases, with no further easing being unrolled, based on the bank's view that"Japan's economy has continued to recover moderately,"which is a slightly more upbeat assessment of the economy compared to last month's view which stated that the economy"has continued its moderate recovery trend. "

The bank staying pat on its monetary policy was widely in line with leading economists'expectations, but the BOJ's recent downgrading of its inflation forecast and timing have led some to suggest the central bank may unroll additional stimulus measures forthwith if drags like the oil glut, sluggish exports, rising import costs and lackluster corporate spending continue to an extent that the bank's 2 percent inflation goal by fiscal 2016 begins to look untenable.

For the time being, however, the bank raised its view on private consumption, stating that it has"been resilient"on the back of steady improvement in the employment and income situation, compared to last month's view which stated that the"recovery in some areas has been sluggish."

Housing investment in the recording period also showed an uptick, according to the BOJ, who said investments in this area are showing"some signs of picking up" after last April's sales tax hike from 5 to 8 percent battered household spending, as Japan turned ultra frugal to deal with the stifling prices.

But public investment was downgraded, with the bank saying that it"has entered a moderate declining trend, although at a high level."This compares to the bank's former assessment that public investment"has more or less leveled off at a high level."

The bank added that as far as the price outlook was concerned, prices would remain at about zero on-year, with a fall in energy prices weighing on the consumer price index. The BOJ also believes that inflation will continue to rise in the longer term despite a current halt recently, which caused the bank to adjust its inflation target of 2 percent. "Exports are picking up and corporate revenues are at record levels. Companies are maintaining their positive stance on capital spending. Private consumption is firm reflecting steady improvements in job and income conditions. The GDP showed consumption rose for three straight quarters,"BOJ Governor Haruhiko Kuroda told a news conference after the conclusion of the policy meeting Friday, with regards to capital expenditure and consumption.

On the current inflation situation, Kuroda said that wage hikes had helped, as households were beginning to spend more and that this was benefiting the overall economy. "Both for households and companies, a positive cycle is kicking in where increases in income are leading to rising spending. As such, our assessment is that Japan's economy continues to recover moderately,"the BOJ chief said, but added"The timing for achieving our inflation target may be swayed by oil price moves but we expect Japan to reach 2 percent inflation around the first half of fiscal 2016."

At the end of April, the central bank was finally forced to extend its lofty 2 percent inflation timeframe from this fiscal year until the first half of fiscal 2016, as predicted by many leading economists who felt the bank's initial target had been unrealistic and likely set by fierce pressure from Prime Minister Shinzo Abe via the finance ministry, as consumer prices have been impacted by the global oil glut and revised downwards from a 1 percent rise forecast in January.

The bank said it expects consumer prices to rise 0.8 percent from the previous year, from an earlier projection of 1 percent and revised downward its inflation projection for fiscal 2016, saying it expects consumer prices to rise 2 percent, down from a prior, more optimistic forecast of 2.2 percent.

Kuroda is sticking to his opinion that restoring fiscal discipline remains a top priority for the government as regards the health of the economy, but contrary to some leading economists who are adamant that consumption is steady and inflation will improve.

On the delay in the bank's inflation target, Kuroda has said that while "It's true that the timing for achieving 2 percent inflation has been delayed somewhat to the first half of fiscal 2016 from a period centering around fiscal 2015, the trend inflation is improving steadily and is expected to continue improving and as such, I don't think there's a need to ease policy further now,"adding that the bank stood poised to expand its monetary easing policy, should needs dictate.

Japan's real gross domestic product grew at its fastest pace in a year at 2.4 percent in the first quarter of 2015, data showed earlier this week, marking the second successive quarterly expansion, as both household and corporate spending finally kicked in following last year's oppressive tax hike.

The first quarterly figures for this year came on the heels of a revised 1.1 percent expansion in the previous quarter and were in line with the central bank's view that the world's third largest economy is on a recovery path, as reiterated by Kuroda on Friday, as corporations begin to invest again on recovering profits, which in turn have been passed on to workers in the form of increased salaries. "The GDP data this week was in line with our view that Japan's economy continues to recover moderately and given the economy and prices are moving in line with our forecasts, I don't see a need for a change in monetary policy." "But we always scrutinize economic and price developments at each policy-setting meeting, including the trend of inflation. And if necessary, we won't hesitate to adjust monetary policy to achieve 2 percent inflation in a stable manner,"Kuroda said, as has become his mantra, while conceding that the biggest contributor to growth in Q1 was higher inventories and that private consumption, housing investment and exports had all risen, but at a lackluster pace. Endi