World Economy

BoJ Upgrades Economic Outlook

BoJ Upgrades Economic OutlookBoJ Upgrades Economic Outlook

The Bank of Japan upgraded its assessment of the economy on Tuesday while keeping monetary policy unchanged in its first decision since Donald Trump’s election victory.

The central bank forecasts a moderate recovery trend to continue following a pickup in exports, an improvement in business sentiment and resilience in private consumption.

However, inflation expectations remain in a weakening phase and risks to the outlook include developments in the Chinese and US economies, Brexit and geopolitical uncertainties, IOL reported.

Most analysts had already adopted the view that the BoJ would stand pat in coming months with its targets for short- and long-term interest rates, even before Trump’s election victory sent the yen tumbling, easing any pressure for additional action to stoke inflation. A majority of economists surveyed said they don’t expect any additional easing before Governor Haruhiko Kuroda steps down in April 2018.

The focus for investors now moves to the BoJ’s efforts to contain a surge in yields amid a global bond sell-off. The central bank’s shift in policy framework in September to yield-curve control was meant to make its stimulus program more sustainable as it neared the practical limits of asset purchases.

The cabinet office earlier Tuesday released upgrades for its estimates for the economy. Real gross domestic product will rise 1.5% in the next fiscal year starting April 1, nominal growth will increase to 2.5% and overall consumer prices will advance 1.1%, it said.

Finance Minister Taro Aso confirmed that the government’s initial budget for next year will be 97.5 trillion yen ($830 billion), an increase of 0.8% on the same figure this year. Like in 2016, the government is expected to follow up with supplementary budgets in 2017.

The BOJ kept its rate on some bank reserves at -0.1% and reiterated its pledge to keep the yield on the 10-year Japanese government bond at around 0%. Both rates are core elements of the new framework it announced in September.

Meanwhile, Kuroda sought to douse market talk the central bank may soon consider raising interest rates, vowing instead to keep policy loose to achieve the BoJ’s 2% inflation goal. He also said he did not see recent yen falls as a problem for Japan’s economy, saying that a weak currency helps accelerate inflation by boosting import costs and in so doing raise inflation expectations—a crucial element in the BoJ’s plan to beat economic stagnation.

“We are still distant from our 2% inflation target. It’s therefore appropriate to continue with powerful monetary easing,” Kuroda told a news conference on Tuesday.


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