The Bank of Japan board Friday decided by a unanimous vote to leave the bank’s policy target unchanged as expected at its two-day monthly meeting, maintaining its overall economic assessment.
“The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about Y60 to Y70 trillion,” the BOJ said.
The BOJ will continue to increase its purchases of Japanese government bonds at an annual pace of about Y50 trillion. The average remaining maturity of the bank’s JGB buying will remain about seven years.
The BOJ didn’t mention at what pace it will continue raising the amount of money available for economic activity beyond the end of 2014, when the monetary base is estimated to reach Y270 trillion.
BOJ Governor Haruhiko Kuroda has said the current aggressive easing launched in April 2013 will continue until stable 2% inflation is well anchored, but has declined to provide any future target for the base money.
Under the current easing framework, the BOJ is committed to doubling the sum of money in circulation and deposited at the central bank in two years from Y138 trillion at the end of 2012.
On the current climate, the BOJ repeated its overall assessment, saying, “Japan’s economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed.”
BOJ and government policymakers have said the drag from the April sales tax hike to 8% from 5% appears to be easing. The latest government surveys have also shown that consumer sentiment rebounded in May.
Despite a pullback in demand, improving employment and income conditions are supporting consumption, the main driver of the recent economic growth, the BOJ said.
“Industrial production has continued to increase moderately as a trend,” although it is being affected by the pullback, it said.
The BOJ repeated its view on capex as it waits for more information in the bank’s quarterly Tankan survey due on July 1. “Business fixed investment has increased moderately as corporate profits have improved,” it said.
Japanese exports “have recently leveled off more or less,” it said, repeating its recent assessment as export growth remains low. Some economists forecast that May exports will show the first year-on-year drop in 15 months.
The BOJ also maintained its outlook, repeating, “Japan’s economy is expected to continue a moderate recovery as a trend, while it will be affected by the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike.”
The BOJ’s near-term inflation outlook remains the same. It expects the year-on-year rate of increase in consumer prices (excluding the direct impact of the sales tax hike) “is likely to be around 1.25% for some time.”
The board left its risk assessment unchanged from last month: “Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects for the European debt problem, and the pace of recovery in the U.S. economy.”
Board member Takahide Kiuchi continued to propose the BOJ should maintain the high degree of easing only during the two-year period from April 2013 so that it is not overdone. But his proposal was again voted down by the rest of the board.
“Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the bank will continue with the QQE, aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining that target in a stable manner,” the BOJ said.
“It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.”
Kuroda will hold a news conference from 1530 JST (0630 GMT) to around 1615 JST (0715 GMT) to discuss the board’s decision.