* BOJ keeps massive stimulus programme intact
* BOJ maintains view economy recovering moderately
* Cuts view on exports, output reflecting weak data
* Governor Kuroda remains upbeat on outlook
(Adds analyst quote, details)
By Leika Kihara
TOKYO, Aug 8 The Bank of Japan offered a bleaker
view on exports and output a week before data is expected show
the biggest contraction in economic activity since the global
financial crisis, heightening concerns a rebound may be delayed
and increase pressure for further monetary easing.
But BOJ Governor Haruhiko Kuroda remained upbeat about the
outlook for the world's third-biggest economy, underscoring the
central bank's conviction that no fresh near-term stimulus is
required to shake off the effects of a sales tax hike in April.
"Japan's economy is likely to continue recovering moderately
with the effect (of an April sales tax increase) seen gradually
subsiding," Kuroda told a news conference on Friday.
"Exports and output have been weakening," he said. "But a
positive economic cycle remains in place as job and income
conditions steadily improve."
Kuroda said exports are set to recover as U.S. and Chinese
growth picks up, adding that geo-political risks, such as
escalating tensions in Ukraine, will not force the BOJ to alter
its upbeat outlook of the global economy at least for now.
He also said Japan's economy was likely to expand above its
potential, deemed at around 0.5 percent or lower, in the current
fiscal year from April despite an expected contraction in the
April-June quarter blamed on the tax hike.
"The output gap will continue to narrow, so inflation will
accelerate from around the latter half of the current fiscal
year," Kuroda said, stressing that Japan is on track to hit the
bank's 2 percent inflation target some time next year.
Some analysts, however, remained unconvinced given exports
have so far failed to offset the hit from the tax hike.
"Kuroda sounded bullish on prices, but he didn't explain
what mechanism could see prices rise while economic growth
slows," said Naomi Muguruma, senior market economist at
Mitsubishi UFJ Morgan Stanley Securities.
"If consumer inflation fails to pick up pace from later this
year towards 2 percent next year, the BOJ would come under
pressure for further easing," she said, adding that the bank may
ease policy again in October.
The BOJ downgraded its assessment of exports - which it has
been counting on to support the economy as the tax hike crimps
consumption. "Exports have shown some weakness," the bank said,
revising last month's assessment they were moving sideways.
It also acknowledged "some weakness" in industrial output.
As widely expected, the BOJ maintained its policy framework,
under which it has pledged to increase base money by 60-70
trillion yen ($580-690 billion) per year through aggressive
asset purchases to reflate the moribund economy.
Exports unexpectedly fell in June for a second straight
month and output plunged at the fastest pace since the March
2011 earthquake, casting doubt on the BOJ's view the economy
will fairly quickly ride out the pain from the April 1 sales tax
hike to 8 percent from 5 percent.
Adding to the gloom, the Nikkei share average slumped to a
two-month low on Friday, suffering its biggest daily decline in
five months as investors were gripped with fear that
geopolitical crises in Ukraine and the Middle East could disrupt
While the BOJ already expects Japan's economy to shrink in
the second quarter due to the tax hike effect, the contraction
may prove to be bigger - and the rebound more modest - than
projected given the delay in an export pick-up and weak
household spending, analysts say.
Some in the nine-member board, such as Koji Ishida, are more
cautious about the outlook than Kuroda. Ishida warned last month
that structural issues may further delay an export rebound.
Heightening worries for policymakers, wages were soft in
June with only a modest rise seen in bonuses and regular pay
despite Prime Minister Shinzo Abe's calls for companies to raise
base salaries so consumers can keep spending.
The closely-watched April-June gross domestic product data,
due out next week, is expected to show Japan's economy shrank an
annualised 7.1 percent, according to a Reuters poll, the biggest
contraction since the global financial crisis.
Some private-sector analysts say such a big contraction in
the second-quarter may mean economic growth in the current
business year will far undershoot the BOJ's current projection
of an 1.0 percent increase.
The weak GDP data, as well as sluggish wage growth, could
also heighten private economists' scepticism that the BOJ will
be able to meet its target of pushing inflation to 2 percent
sometime next year without further stimulus.
Kuroda said the BOJ was ready to expand stimulus if the
economy worsened enough to derail the path toward meeting the
price target. But he stressed the BOJ's top priority was to meet
the price target, not to respond to temporary blips in the
economy. As for the price target, the governor said the economy
was on track.
His upbeat comments led some analysts to believe the BOJ
remains unfazed despite the recent weak data, and that the bank
won't act any time soon.
"Weakness in some economic data so far is not strong enough
to change our main scenario that the BOJ is unlikely to ease
this year," said Yuichi Kodama, chief economist at Meiji Yasuda
"If the inflation rate eases well below 1 percent or there
is financial market turmoil, then the BOJ could ease as early as
(1 US dollar = 102.1900 Japanese yen)
(Additional reporting by Tetsushi Kajimoto and Stanley White;
Editing by Kim Coghill, William Mallard & Shri Navaratnam)