Bank of Japan eyes steady growth, holds off fresh easing

By Hiroshi Hiyama, AFP

TOKYO — Japan’s central bank Thursday said the world’s third-largest economy would grow slightly less than expected amid turmoil overseas, but it held off fresh easing as it pointed to a steady recovery. The move surprised some analysts after a flurry of policy moves by central banks in Europe, Asia and South America aimed at propping up a global economy that is showing signs of slowing. But the Bank of Japan (BOJ), following a two-day policy meeting, said it would keep rates steady at zero to 0.1 percent and a 70-trillion-yen (US$880 billion) asset-purchase program in place. The bank also said it expected Japan’s economy to expand by 2.2 percent in the fiscal year through March 2013, slightly lower than its April outlook of 2.3 percent growth. But the latest forecast was still higher than its January outlook of 2 percent growth. Japan’s economy contracted last year as it was pounded by the quake-tsunami disaster, a strong yen and flooding in Thailand. The bank also kept a 1.7 percent growth forecast for the next fiscal year unchanged. It cited improving domestic demand and business confidence but acknowledged that uncertainty in overseas markets, including Europe and the United States, could be a drag on Japan’s economic recovery.

“Japan’s economic activity has started picking up moderately as domestic demand remains firm mainly supported by reconstruction-related demand” following last year’s natural disasters, it said in a statement. “(But) there remains a high degree of uncertainty about the global economy, including the prospects for the European debt problem … (and) the momentum toward a recovery for the U.S. economy.” The U.S. Federal Reserve has also held off fresh measures, but the European Central Bank and China’s central bank ushered in rate cuts last week, while Brazil on Wednesday cut its rate to a record low. “After rate cuts by Korea and Brazil, it’s just odd that the BOJ is not playing ball like everyone else,” said Hideyuki Ishiguro, strategist at Okasan Securities in Tokyo. “Stock investors feel that the BOJ is too tentative, too little, and too late on policy, and that it lack a sense of duty to support the market,” he told Dow Jones Newswires. The BOJ also lowered its inflation forecast in the current fiscal year to 0.2 percent from an earlier estimate of 0.3 percent, and kept unchanged its view of a 0.7 percent inflation rate for the following year. Japan has been stuck in a deflationary spiral for years with efforts to battle a general trend of falling prices having little impact. Europe, a key market for everything from Japanese televisions and DVD players to cars and machinery, remains at the top of policymakers’ concerns, with officials repeatedly saying the eurozone crisis is the biggest threat to Japan’s economic recovery.