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BoJ optimistic on economy, keeps policy steady

The Bank of Japan said the world’s third-largest economy was finally recovering as it kept monetary policy steady, its most optimistic view in two-and-half years reflecting the impact of a weakening yen and its massive monetary stimulus on activity.

A woman leaves the BoJ headquarters in Tokyo. Japan’s central bank is becoming more upbeat on the nation’s economy after implementing an ambitious monetary policy aimed at boosting inflation and growth. — AP

BoJ Governor Haruhiko Kuroda said on Thursday while overseas economies were weaker than expected that would be offset by robust domestic consumer spending and a pick-up in capital expenditure, and so he remained confident of meeting a target of lifting inflation to two per cent in roughly two years.

He said the BoJ was monitoring developments in China, Japan’s main trading partner, as growth slowed and as authorities tried to rein in sharp growth in informal lending.

“Chinese policymakers have clearly shifted to a stance of emphasising the quality of economic growth rather than speed,” Kuroda told a news conference after the BoJ’s policy review.

“Still, there’s no change to our forecast that China’s economy will continue to achieve strong, stable growth.”

Earlier, the central bank’s board voted unanimously to maintain its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 60 trillion to ¥70 trillion ($600 billion-$700 billion).

“Japan’s economy is starting to recover moderately,” the central bank said in a statement after its two-day meeting, revising up its assessment for the seventh straight month.

The last time the BoJ used the word “recover” to describe the economy was in January 2011, two months before the March 11 earthquake and tsunami that devastated the country.

The central bank made no major changes to its forecast that consumer inflation would accelerate in the coming years to near two per cent in the business year ending March 2016, a key target for Prime Minister Shinzo Abe’s drive to reflate the economy.

Many central bank officials are encouraged by bright signs in the economy as the yen’s fall to multi-year lows supports exports and the feel-good mood generated by Abe’s reflationary strategy bolsters consumer spending and business confidence.

Data on Thursday supported that view, with core machinery orders, a leading indicator of capital expenditure, rising a bigger-than-expected 10.5 per cent in May.