BOJ says economy on mend, keeps ultra-loose monetary policy

AP News
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Posted: Feb 18, 2015 4:12 AM
BOJ says economy on mend, keeps ultra-loose monetary policy

TOKYO (AP) — Japan's central bank pointed to signs of improvement in the world's third-biggest economy after ending a policy meeting Wednesday with no change to its ultra-loose monetary stance.

The Bank of Japan noted that lower energy costs due to the plunge in crude prices will slow progress toward its inflation target of 2 percent.

But it cited a recovery in exports, improved industrial production and increased corporate investment as evidence that Japan's economy is in a "moderate recovery trend." Japan exited a recession in the last quarter of 2014.

The bank said a slump in housing investment is beginning to bottom out.

The BOJ is injecting tens of trillions of yen (hundreds of billions of dollars) into the economy each year to encourage business investment and push prices higher, in turn weakening Japan's currency.

The weaker currency has fattened profits of exporters, helping push share prices to seven-year highs.

In its statement, the central bank did not mention the issue of falling or stagnant wages. They are a key concern frequently raised both by BOJ Gov. Haruhiko Kuroda and Prime Minister Shinzo Abe, who has made strong fiscal and monetary stimulus his main strategy for countering years of deflationary stagnation.

The central bank did note, regarding private consumption, that the "recovery in some areas has been sluggish."

Kuroda and Abe, and many economists, say that long-term growth will hinge on improved purchasing power for Japanese consumers, whose spending is the main driver of growth. They have been lobbying the business community to raise wages at a faster pace to help support the recovery.

Although the economy grew at a 2.2 percent annualized pace in the last quarter, it was flat for the entire year, which was its worst performance in three years.

"The BOJ does not seem to be fully convinced over the strength of the economic recovery, and we still think that policymakers will announce more stimulus in late April," Capital Economics said in a commentary Wednesday, describing the central bank's assessment as "too optimistic."