Roundup: Japan central bank stands pat on monetary policy, overseas economic outlook could lead to fresh easing

The Bank of Japan (BOJ) on Tuesday opted to maintain its accommodative monetary policy despite an economic contraction last quarter and concern in some camps over a slowdown in overseas economies, particularly in Asia.

The central bank also decided to hold off on boosting stimulus, despite the downside risks, following the conclusion of its policy board's two-day meeting, with leading economists' eyes now on Prime Minister Shinzo Abe and the finance ministry here's compilation of the next stimulus package, which will have to be large enough to kickstart growth and boost inflation.

The BOJ in a statement said it would continue to increase the monetary base at an annual pace of 80 trillion yen (665.9 billion U.S. dollars), in a move largely in line with median analysts' forecasts, with the bank stating that advanced economies were still propping up markets, while emerging economies continued to weigh.

"Overseas economies -- mainly advanced economies -- have continued to grow at a moderate pace, despite the slowdown in emerging economies," the statement continued, in a downgrade from the bank's view last month which stated that, "Overseas economies - - mainly advanced economies -- have been recovering albeit with a lackluster performance still seen in part."

With the bank still aiming for a 2 percent inflation target, some economists and members of the board believe that the target schedule for the bank's reflationary effort will be delayed again, as the bank's inflation gauge currently stands at zero.

And BOJ Governor Haruhiko Kuroda at a press conference Tuesday following the board's policy meeting maintained that a weak yen couldn't be solely relied on for the bank's reflationary target.

"It's true exchange rate moves have a certain impact on prices. But we can't say that a weak yen will always push up inflation because if import costs rise, that hurts consumption for other goods," the BOJ chief said.

"If you also look at a certain timeframe, the yen doesn't usually keep weakening or strengthening forever. I don't think you can say that if the dollar stays around, say, 120 yen, that prices won't rise anymore," Kuroda said.

The bank's statement also drew attention to the fact that although the economy had been viewed as recovering moderately, both exports and production had been adversely affected by a slowdown in emerging economies, leading Kuroda to state that the bank would be keeping a close eye on how global markets shape up.

"The slowdown in emerging economies are already affecting Japan 's exports and output. Even so, Japan's economy continues to recover moderately. Corporate revenues are at record-high levels, underpinning a steady improvement in job and income conditions," said Kuroda.

"A positive cycle of rising income leading to higher expenditure is firmly in place. Having said that, we'll closely monitor global market developments and the outlook for the world economy," the BOJ chief told the press gathering.

Kuroda went on to explain that while revenues of companies in Japan remained robust and investments reflected a positives sentiment, concerns had been expressed about the affects on spending, output and wages if the situation in emerging economies continues to slide.

"Industrial output will remain flat for the time being. But as exports pick up and inventory adjustments proceed for some sectors, they are seen resuming a moderate increase," he said, adding that, "Companies are reaping record revenues and their investment appetite is very strong.

"I don't think sentiment is directly being hurt from market volatility for now. But it's true some companies seem to be worried about the impact from slowing emerging market growth so we hope to monitor developments carefully," said Kuroda.

The BOJ chief said he predicted a rebound in the July-September quarter, with a number of analysts believing that the bank will unveil new easing measures soon, although the exact timing of the move remained a point of debate.

Hiroshi Miyazaki, a senior economist with Mitsubishi UFJ Morgan Stanley Securities, said that prices are missing the bank's expectations and as such further easing could be unveiled as soon as October.

"We're not in a recession, but the economy clearly lacks strength and prices are undershooting the BOJ's price target by a lot. The BOJ could ease again in early October, to avoid falling behind the curve," Miyazaki said.

For his part, the BOJ chief maintained the bank's stance that it always stood poised to alter its monetary policy to quickly adjust to market conditions, with an aim of ultimately achieving its price target.

"There's absolutely no change to our view that we won't hesitate to adjust monetary policy if there's a change in the price trend and we think further action is needed to swiftly achieve our price target," said Kuroda. Endi