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POLITICAL ECONOMY
BoJ holds off new easing measures as tax hike looms
by Staff Writers
Tokyo (AFP) March 11, 2014


The Bank of Japan held off fresh monetary easing measures Tuesday, saying the economy was picking up, despite slowing growth in the last quarter of 2013 and fears that a looming tax hike will dent the recovery.

The head of the central bank also indicated he was confident it would achieve its inflation targets by the end of next year but policy makers sounded a warning over exports.

"Japan's economy has continued to recover moderately," the bank said in a statement after a two-day policy meeting, adding that spending had jumped ahead of the tax rise.

"The pick-up in business fixed investment has become increasingly evident as corporate profits have improved... Housing investment has continued to increase and private consumption has remained resilient."

The dollar weakened slightly to 103.22 yen in afternoon trade from 103.28 yen before the announcement.

Bank governor Haruhiko Kuroda said a 2.0 percent inflation target, aimed at reversing years of deflation, was drawing closer.

"The consumer price index is steadily following a path toward (the target), so we don't see the need to make a policy adjustment at this time," he told a press briefing.

Recent data showed consumer prices logged their first annual rise for five years in 2013.

The bank aims to achieve its target by the end of next year but there is growing scepticism among analysts and even some BoJ board members about that ambitious timeline.

- 'Further easing will be required' -

Analysts had widely expected the bank to stand pat Tuesday as its easing programme ripples through the economy, but were watching for signs from Kuroda of future policy moves.

The decision "to stay the course at today's meeting came as no surprise, but we remain convinced that further easing will be required in coming months", said Marcel Thieliant from London-based Capital Economics.

Markets are looking for signs that the bank will add to its vast stimulus programme to counter any slowdown caused by April's sales tax hike, which critics fear will derail Japan's nascent recovery.

Those concerns gathered pace Monday as revised growth data showed the world's third-largest economy expanded at a slower pace than initially thought last year, despite a boost in spending ahead of the tax hike.

The worry is that the sales tax rise -- to 8.0 percent from 5.0 percent -- will weigh on consumer spending and put the brakes on growth in the wider economy.

Monday's data showed Japan's economy expanded 0.2 percent in the quarter to December and 1.5 percent through 2013. That was weaker than preliminary results showing gross domestic product grew 0.3 percent for the October-December period and 1.6 percent in 2013.

A key reason for the downward revision was weak exports, despite a dive in the value of the yen in the past year, while the BoJ said growth in overseas shipments had "recently levelled off more or less".

Japan's trade imbalance has widened to record levels as the weak exports were outpaced by ballooning energy bills owing to the shutdown of the country's nuclear reactors following the Fukushima crisis.

Atomic power once supplied more than a quarter of the resource-poor nation's energy, and a cheap yen has made energy imports even pricier.

In January, Japan's trade deficit swelled to another monthly record. The 2.79 trillion yen ($27 billion) shortfall also underscored a boost in purchases of foreign goods ahead of the tax rise,

The economic growth figures underscore concerns about the pace of growth under Prime Minister Shinzo Abe's policy blitz, a mesh of big government spending and BoJ easing measures.

Kuroda unveiled the asset-buying scheme -- which aims to boost the money supply -- in April as part of Abe's broader plan to eradicate years of falling prices that have held back consumer spending and business investment.

The programme aims to add between 60 trillion yen and 70 trillion yen annually to Japan's money supply.

While it has not extended the monetary easing since April, the bank after its February meeting said it would tweak a loans scheme to commercial banks in a bid to stimulate borrowing.

Among other measures was an extension of the timeline for a programme aimed at promoting development in parts of the country hammered by the quake-tsunami disaster three years ago.

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