BOJ keeps monetary policy unchanged despite risks to growth

TOKYO – Japan central bank choose Tuesday to keep its monetary policy mostly unchanged but noted a raft of risks for an economy making scant headway toward a sustained recovery.

Analysts had been divided over whether the Bank of Japan would expand its lavish asset purchases or cut interest rates still further to spur growth. The decision to wait-and-see took share prices lower in most regional markets.

Japan’s economy contracted in the last quarter of 2015, buffeted by the slowdown in China and other emerging economies. Recent data suggest it might shrink again during this quarter, in what would be Japan’s third “technical recession,” or two straight quarters of contraction, in four years.

“While the BOJ refrained from adding more stimulus today, sluggish economic activity and the stronger yen suggest that policymakers will have to announce more easing soon,” Marcel Thieliant of Capital Economics said in a research note.

The continued weakness prompted the BOJ to impose a “negative interest rate” policy that took effect last month and requires banks to pay a fee of 0.1 per cent on excess reserves kept at the central bank.

That measure followed similar moves in Europe but is unpopular with financial circles and the public, who are seeing rates paid on their own savings deposits shrink ever closer to zero.

The BOJ’s meeting comes just ahead of a meeting this week by the U.S. Federal Reserve that will be closely watched for hints of possible future rate hikes.

Japan’s interest rates have remained near zero for years. Under BOJ Gov. Haruhiko Kuroda, the central bank has been buying roughly 80 trillion yen ($700 billion) of government bonds and other assets a year.

The injections of cash into the economy are meant to drive prices higher, prompting businesses and consumers to spend more, but demand has remained tepid, falling 1.2 per cent from a year earlier in the October to December quarter.

Given that trend, the BOJ’s description of private demand as “resilient” marked a “fresh high of absurdity,” Thieliant said.

Japan’s current spring “labour offensive” is expected to yield only modest wage increases, despite appeals to the business community to do more to help support the economy.

The BOJ’s statement Tuesday noted a slowdown in housing and public investments and recent volatility in global financial markets. It forecast that exports and industrial output would remain sluggish and said inflation was likely to stay at about 0 per cent for now but eventually climb toward a 2 per cent target set three nearly years ago.


Follow Elaine Kurtenbach: