Japan's central bank cut growth forecast for the world's third-largest economy amid sluggish exports and weak household spending after a sales tax hike in April, but maintained its current monetary easing measures.
At a two-day policy meeting wrapped up Tuesday, the Bank of Japan (BOJ) said the country's gross domestic product (GDP) for the current financial year will grow 1.0 percent, down from 1.1 percent forecast in its April estimate, according to a statement released by the BOJ. But the central bank kept its fiscal 2015 and 2016 growth targets intact at 1.3 percent and 1.5 percent, respectively.
At the policy meeting, BOJ Governor Haruhiko Kuroda and his eight board colleagues stuck to their forecast that inflation will approach its 2 percent goal in 2015. The central bank also unchanged its basic assessment of the domestic economy, 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." "Business fixed investment has increased moderately as corporate profits have improved," the BOJ said. "Private consumption and housing investment have remained resilient as a trend with improvement in the employment and the income situation, although a subsequent decline in demand following the front-loaded increase has recently been observed," the central bank said. Industrial production has continued to increase moderately as a trend, albeit with some fluctuations, it said.
On the price front, the central bank said the year-on-year rate of change in the consumer price index is at around 1.25 percent. "Inflation expectations appear to be rising on the whole." With regard to the outlook, the BOJ said Japan's economy is expected to continue a moderate recovery as a trend, and the effects of the subsequent decline in demand following the April sales tax hike are expected to wane gradually. It pointed out risks, saying, "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 US economy." Meanwhile, BOJ board members voted unanimously to keep its ultra-easy policy introduced April last year. "The BOJ will conduct money market operations so that the monetary base will increase at an annual pace of about JPY 60-70 trillion (USD 590- 690 billion)," the central bank said.
"The BOJ will continue with the quantitative and qualitative monetary easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner," it said, adding that it will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate. The BOJ said its monetary easing has been exerting its intended effects, showing its confidence that the country remains on track toward the price stability target.
In April 2013, the BOJ launched a massive monetary easing program to end deflation that has lasted for nearly 15 years and achieve the 2 percent inflation target in fiscal 2015. The measures center on doubling the monetary base and purchases of government bonds in two years as well as to purchase more risky financial assets, including exchange-traded funds and real estate investment trusts.