November 19, 2015 / 3:29 AM / 4 years ago

BOJ keeps policy steady despite recession, sees capex rebound

TOKYO (Reuters) - The Bank of Japan kept its monetary stimulus program unchanged on Thursday, with Governor Haruhiko Kuroda holding fast to his view that the corporate capital expenditure vital to economic growth will pick up - suggesting that no new monetary easing is imminent.

The BOJ offered a slightly more cautious view on inflation expectations - or how the public perceives future price moves - than at last month’s meeting, underscoring its concerns over a lack of success in nudging companies into boosting wages and investment.

“The BOJ places a lot of importance on inflation expectations, so they would have to consider more easing if inflation expectations weaken further,” said Norio Miyagawa, a senior economist at Mizuho Securities.

Kuroda stressed that there was no change to his commitment of trying to achieve his 2 percent inflation target at the earliest date possible, a sign he won’t hesitate to ease policy should economic conditions threaten achieving the target.

He shrugged off the view held by many investors that the BOJ won’t able to sustain its stimulus program, dubbed “quantitative and qualitative easing” (QQE), for too long as its huge government bond purchases are already drying up liquidity.

“There was never a specific timing set in advance on how long QQE will last,” Kuroda told a post-meeting news conference. “I don’t think we will face any problem continuing this program.”

As widely expected, the BOJ reiterated its pledge to increase base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen ($650 billion) through purchases of government bonds and risky assets.

It also kept intact its assessment that Japan’s economy continues to recover moderately.


Japan’s economy relapsed into recession in July-September, while exports showed initial signs of bottoming out in October as strong U.S.-bound shipments offset some of the pain from China’s slowdown.

Kuroda shrugged off the July-September contraction as due largely to declines in inventory, saying that consumption remained resilient and exports will rebound over time.

While acknowledging that there were some delays in capital expenditure, he expressed confidence that companies will start deploying some of their record profits on investment and wage increases.

“There are risks such as slowdowns in China and other emerging economies ... Still, capital expenditure will increase, albeit with some delays,” he said.

Kuroda has been urging firms to do more to tackle deflation, a tacit admission that his massive money-printing exercise has failed so far and that policymakers are losing faith in the value of delivering yet more of the same.

A man walks past the Bank of Japan (BOJ) building in Tokyo, October 30, 2015. REUTERS/Thomas Peter

At the previous rate review, the BOJ held off on easing despite cutting its growth forecasts and delaying the timing for hitting its 2 percent price growth goal by six months.

Nearly half of the analysts polled by Reuters expect the BOJ to ease in January, when continued declines in oil costs may force it to cut its quarterly inflation forecasts yet again.

Sources familiar with its thinking say the BOJ will consider easing only if weakness in overseas demand persists long enough to dent business confidence, which would in turn hit investment plans and further discourage wage rises.

Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Stanley White and Kaori Kaneko; Editing by Eric Meijer

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