Roundup: BOJ holds pat on policy, lowers economic view as production, exports still sluggish

The Bank of Japan on (BOJ) on Tuesday opted to hold pat on its policy despite downgrading the view of the world's third-largest economy after it decided to plunge its interest rate into negative territory at the end of January, following an economic contraction in the last quarter as consumption waned and exports remained stifled.

Following the conclusion of its monthly two-day policy meeting, the central bank's nine-member Policy Board voted by 8 to 1 to maintain its current monetary easing policy which includes increasing the country's monetary base by 80 trillion yen (705.36 billion U.S. dollars) annually.

By a vote of 7 to 2, the BOJ voted to keep the rate it charges commercial banks on certain reserves at its newly-decided 0.1 percent.

The BOJ said it would continue to monitor recent market volatility and the impact this has had on business confidence here as pertains to its reflationary goals, with the bank suggesting that money reserve funds (MRFs) may also be charged interest in a subsequent review, if it looks like the bank's 2 percent inflation goal may become untenable.

The bank did note, to this end, that its latest price gauge showed that inflation had flatlined, an indication economists here have said is a harbinger for possible further easing in the months ahead.

"On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is about 0 percent. Although inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, they have recently weakened," the BOJ said.

Local economists said Tuesday that the bank may opt to unroll further easing measures in July, once the effects of the current negative interest rates are fully known, coupled with the latest GDP data being released showing the state of the economy following the yen's comparative firmness against a basket of other currencies, an ongoing drop in oil prices -- which while helping imports also negatively impacts the yen which is used as a safe haven when investors flee from riskier assets like stocks when oil prices tank -- against a backdrop of pressured exports and falling output as demand wanes.

"Japan's economy has continued its moderate recovery trend," the bank said in a statement, downgrading its official view from last month. "Exports and production have been sluggish due mainly to the effects of the slowdown in emerging economies. Overseas economies have continued to grow at a moderate pace, but the pace of growth has somewhat decelerated mainly in emerging economies," the BOJ said.

The central bank said that both production and exports were expected to remain "sluggish" for the time being, with the economy expected to remain on a "moderate expanding trend" with risks to the economic outlook here connected to both emerging and commodity-exporting economies, responses to financial markets by any change in monetary policy by the U.S. Federal Reserve, Europe's ongoing debt crisis, as well as geopolitical concerns. Enditem