BOJ keeps stimulus in place, cuts view on exports in warning sign

Economists still worried about export demand

Bank of Japan governor Haruhiko Kuroda

Bank of Japan governor Haruhiko Kuroda


The Bank of Japan has maintained its massive monetary stimulus on the view that growth in the economy and consumer prices remains on track, but downgraded its assessment of exports in a warning about external demand.

Governor Haruhiko Kuroda expressed confidence that the weakness in exports is temporary and stuck with the BOJ’s overall assessment that the economy can continue a gradual recovery, suggesting additional easing was not imminent.

The BOJ did upgrade its view of capital expenditure and turned more optimistic about industrial production, showing more confidence in domestic demand before an increase in the sales tax scheduled for April 1st.

However, this optimism is unlikely to ease concerns that domestic demand will weaken after the tax hike and that exports will not be strong enough to support growth, which could increase calls for more monetary stimulus.

As expected, the central bank maintained its pledge of increasing base money, its key monetary policy gauge, at an annual pace of 60-70 trillion yen ($590-$690 billion).

The BOJ launched the stimulus last April, saying it would lift inflation to 2 per cent within around two years via aggressive asset purchases as it sought to end 15 years of deflation.

The BOJ said exports had levelled off recently, which was a downgrade from its assessment last month, when the central bank said exports were on a recovery path.

Japan posted a record current account deficit in January due to consistently weak exports, undermining the BOJ’s argument until now that exports would eventually pick up pace as the US economy recovers.

Exports have been weak mainly due to a slowdown in Asian economies and other emerging markets, Governor Haruhiko Kuroda told reporters after the policy decision.

The closure of factories due to extremely cold weather in the United States and the celebration of the Lunar New Year in many Asian countries have also weighed on exports, he said.

Once these temporary factors subside, Japan’s exports will pick up as a recovery in the United States and Europe spreads to Asia, he said. Mr Kuroda also played down the geopolitical risks posed by Russia’s military intervention in the Ukraine.

“I see no reason to adjust policy now,” Mr Kuroda said. “The economy can continue to expand above its potential growth rate.”