Data on Monday showing the world's third-largest economy grew much
slower than expected in the fourth quarter underscored the challenge
of ending nearly two decades of stagnation.
It also may heighten pressure on the BOJ in coming months to do more
to bolster the economy, analysts say.
But the central bank is likely to stick to its view that growth will
accelerate in the first quarter as consumers rush to beat a sales
tax hike in April, and that it can weather any subsequent decline in
household spending from the higher tax without additional stimulus.
With the yen and Japanese stock prices also having calmed down after
the latest emerging market rout, the BOJ also sees little need to
use its depleted policy arsenal now.
"I don't think the BOJ will adopt additional easing steps as
domestic demand is strong and prices are steadily increasing, and as
long as the markets are stable," said Yoshiki Shike, chief economist
at Dai-ichi Life Research Institute in Tokyo.
The central bank is widely expected to maintain its pledge of
increasing base money, its key monetary policy gauge, at an annual
pace of 60-70 trillion yen ($589-$687 billion).
It may also extend special loan facilities, cobbled together between
2010 and 2012 as a way to drive funds through the banking sector to
borrowers, beyond their expiry date of March by at least a year.
Markets will focus on whether Governor Haruhiko Kuroda will stick to
his view, offered last month, that no further easing was needed now
with prices rising steadily and overseas economies recovering.
The BOJ has stood pat since launching an intense burst of stimulus
last April, when it pledged to accelerate inflation to 2 percent in
roughly two years via aggressive asset purchases in a country mired
in deflation for 15 years.
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Some Japanese policymakers have worried the market turbulence
earlier this month, which boosted the safe-haven yen and drove down
Tokyo share prices, could undermine the positive momentum generated
by the stimulus.
The soft fourth-quarter GDP data may also play into the hands of
some pessimists in the nine-member board, who fret the April tax
hike may hurt household spending more than expected or that U.S.
growth may not prove strong enough to make up for weak demand for
Japanese goods in emerging Asian markets.
Still, mainstream members of the board, such as Kuroda and his two
deputy governors, have argued that temporary speed bumps in the
economy won't be enough to justify further easing.
The BOJ policymakers will likely scrutinize how the April tax hike
and the uncertain global outlook, which has kept export growth
disappointingly slow, will affect prospects for meeting their 2
percent price target.
(Editing by Kim Coghill)
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