TOKYO – Japan’s central bank opted Friday for a modest expansion of its lavish monetary stimulus to help perk up sluggish growth and combat deflation.
The measures fell short of expectations among many investors for more aggressive action, but Bank of Japan Gov. Haruhiko Kuroda said there was more room to act if need be.
The Bank of Japan ended a policy meeting Friday by announcing it will expand purchases of assets from financial institutions to help inject more cash into the world’s third-largest economy and pursue its 2 per cent inflation target.
It also plans a “comprehensive assessment” of the impact of the bank’s monetary easing on the economy, citing “considerable uncertainty” over the outlook for prices and global markets.
The central bank was under heavy pressure to act after earlier this week Prime Minister Shinzo Abe announced 28 trillion yen ($267 billion) in spending initiatives to help support the sagging economic recovery.
The recent vote by Britain to leave the European Union has added to the uncertainties clouding the global outlook at a time when Japan’s recovery remains in question.
The government recently downgraded its growth forecast for 2016 to 0.9 per cent from 1.7 per cent, and speculation had mounted over the possibility for a so-called “helicopter money” approach that would entail more direct infusions of money into the economy.
“It is hard to understand why the BOJ did not ease more aggressively today,” said Masaaki Kanno of JPMorgan in Tokyo.
Finance Minister Taro Aso welcomed the step and pledged to work with the central bank in shoring up growth.
“The government is currently studying and arranging comprehensive and drastic economic measures,” Aso said.
The 7-2 central bank decision was to almost double annual purchases of exchange traded funds, to 6 trillion yen ($57 billion) from the current 3.3 trillion yen. One fifth of that is earmarked for companies that meet benchmarks for investing in staffing and equipment, it said in a statement.
The BOJ also doubled the size of a U.S. dollar lending program to support Japanese companies’ operations overseas, to $24 billion. It already is injecting about 80 trillion yen ($760 billion) a year into the economy through asset purchases, mainly of Japanese government bonds.
The central bank did not change the interest it charges on policy-rate balances it holds for commercial banks, which is now at a record low minus 0.1 per cent.
Financial markets seemed underwhelmed by the central bank’s modest action.
The Nikkei 225 stock index dropped nearly 2 per cent but later regained lost ground, closing 0.6 per cent higher at 16,569.27 on Friday. The U.S. dollar weakened to 103.55 yen from 104.80 yen late Thursday.
Ahead of the central bank’s decision, Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling from the year before and core inflation excluding volatile food prices at minus 0.5 per cent.
Still, while industrial output fell 1.9 per cent from the year before, it rose 1.9 per cent from the month before, with strong shipments related to homebuilding and other construction.
Unemployment fell to 3.1 per cent in June from 3.2 per cent for the past several months. But tightness in the job market has not spilled into significant increases in wages that might help spur more consumer demand and encourage businesses to investment in the short of “virtuous cycle” Abe has been promising since he took office in late 2012.
“With underlying inflation set to moderate further toward the end of the year, we think that the bank will still have to provide more easing before too long,” Marcel Thieliant of Capital Economics said in a commentary.
AP Business Writer Elaine Kurtenbach contributed from Bangkok, Thailand.