Key issues for Japan's economy as BOJ monetary easing stays

AP News
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Posted: Dec 20, 2016 3:37 AM
Key issues for Japan's economy as BOJ monetary easing stays

TOKYO (AP) — Japan's central bank issued an upbeat assessment of the world's third-largest economy when it wrapped up its final meeting of the year Tuesday by keeping its ultra-lax monetary policy unchanged.

The Bank of Japan kept its key policy interest rate at minus 0.1 percent.

While the U.S. Federal Reserve is raising interest rates as the U.S. recovery gains momentum, Japan is still struggling to pull out of a slow-growth rut. The BOJ's assessment of the economy said exports, investment and industrial production had shown signs of improvement.

Structural factors such as low productivity and a shrinking population are hindering the recovery, and BOJ Gov. Haruhiko Kuroda has called for broader economic reforms and government spending to supplement his monetary policy "bazooka." Here are a few key indicators:

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GROWTH: Japan's economy grew at a 1.3 percent annual pace in July-September, the third straight quarter of expansion but below most economists' forecasts. Quarterly growth was 0.3 percent. By comparison, the U.S. economy expanded at a 3.2 percent annual rate in the last quarter.

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TRADE: Japan's exports fell 0.4 percent from a year earlier in November. That was better than forecast and the smallest decline in over a year. Mostly it was due to a weakening in the Japanese yen, which has lost value as the U.S. dollar surged after Donald Trump was elected president.

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INFLATION: The BOJ said Japan's consumer price index would likely remain at zero or slightly negative for now, well below a 2 percent target set nearly four years ago. At the same time, surging costs for health care and fresh vegetables are causing consumers to hold back on spending.

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UNEMPLOYMENT: Japan's jobless rate is at 3.0 percent, and many companies complain they cannot find enough workers.

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INCOMES: Real incomes have been falling or flat, as employers resist raising wages out of fears they would be locked into higher labor costs in a downturn.

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INVESTMENT: A weaker yen can boost earnings of Japanese companies that get a large share of their profits overseas. So far, however, strong profits have not resulted in a surge in corporate investment, which has been at best modest and often flat or slightly negative in the past year.

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WILD CARDS: Apart from the slowdown in growth in key export markets like China, uncertainty over the outlook for global markets, the economy and trade once President-elect Trump takes office; Britain's plans to leave the European Union and broader geopolitical crises are also potential risks, the BOJ said.