|
 But BOJ Governor Haruhiko Kuroda remained upbeat about the outlook
for the world's third-biggest economy, underscoring the central
bank's conviction that no fresh near-term stimulus is required to
shake off the effects of a sales tax hike in April.
"Japan's economy is likely to continue recovering moderately with
the effect (of an April sales tax increase) seen gradually
subsiding," Kuroda told a news conference on Friday.
"Exports and output have been weakening," he said. "But a positive
economic cycle remains in place as job and income conditions
steadily improve."
Kuroda said exports are set to recover as U.S. and Chinese growth
picks up, adding that geo-political risks, such as escalating
tensions in Ukraine, will not force the BOJ to alter its upbeat
outlook of the global economy at least for now.
He also said Japan's economy was likely to expand above its
potential, deemed at around 0.5 percent or lower, in the current
fiscal year from April despite an expected contraction in the
April-June quarter blamed on the tax hike.
"The output gap will continue to narrow, so inflation will
accelerate from around the latter half of the current fiscal year,"
Kuroda said, stressing that Japan is on track to hit the bank's 2
percent inflation target some time next year.
Some analysts, however, remained unconvinced given exports have so
far failed to offset the hit from the tax hike.
"Kuroda sounded bullish on prices, but he didn't explain what
mechanism could see prices rise while economic growth slows," said
Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan
Stanley Securities.
"If consumer inflation fails to pick up pace from later this year
towards 2 percent next year, the BOJ would come under pressure for
further easing," she said, adding that the bank may ease policy
again in October.
The BOJ downgraded its assessment of exports - which it has been
counting on to support the economy as the tax hike crimps
consumption. "Exports have shown some weakness," the bank said,
revising last month's assessment they were moving sideways.
It also acknowledged "some weakness" in industrial output.
As widely expected, the BOJ maintained its policy framework, under
which it has pledged to increase base money by 60-70 trillion yen
($580-690 billion) per year through aggressive asset purchases to
reflate the moribund economy.
GROWTH DOUBTS
Exports unexpectedly fell in June for a second straight month and
output plunged at the fastest pace since the March 2011 earthquake,
casting doubt on the BOJ's view the economy will fairly quickly ride
out the pain from the April 1 sales tax hike to 8 percent from 5
percent.
Adding to the gloom, the Nikkei share average slumped to a two-month
low on Friday, suffering its biggest daily decline in five months as
investors were gripped with fear that geopolitical crises in Ukraine
and the Middle East could disrupt global growth.
[to top of second column] |
While the BOJ already expects Japan's economy to shrink in the
second quarter due to the tax hike effect, the contraction may prove
to be bigger - and the rebound more modest - than projected given
the delay in an export pick-up and weak household spending, analysts
say.
Some in the nine-member board, such as Koji Ishida, are more
cautious about the outlook than Kuroda. Ishida warned last month
that structural issues may further delay an export rebound.
Heightening worries for policymakers, wages were soft in June with
only a modest rise seen in bonuses and regular pay despite Prime
Minister Shinzo Abe's calls for companies to raise base salaries so
consumers can keep spending.
The closely-watched April-June gross domestic product data, due out
next week, is expected to show Japan's economy shrank an annualized
7.1 percent, according to a Reuters poll, the biggest contraction
since the global financial crisis.
Some private-sector analysts say such a big contraction in the
second-quarter may mean economic growth in the current business year
will far undershoot the BOJ's current projection of an 1.0 percent
increase.
The weak GDP data, as well as sluggish wage growth, could also
heighten private economists' scepticism that the BOJ will be able to
meet its target of pushing inflation to 2 percent sometime next year
without further stimulus.
Kuroda said the BOJ was ready to expand stimulus if the economy
worsened enough to derail the path toward meeting the price target.
But he stressed the BOJ's top priority was to meet the price target,
not to respond to temporary blips in the economy. As for the price
target, the governor said the economy was on track.
His upbeat comments led some analysts to believe the BOJ remains
unfazed despite the recent weak data, and that the bank won't act
any time soon.
"Weakness in some economic data so far is not strong enough to
change our main scenario that the BOJ is unlikely to ease this
year," said Yuichi Kodama, chief economist at Meiji Yasuda Life
Insurance.
"If the inflation rate eases well below 1 percent or there is
financial market turmoil, then the BOJ could ease as early as next
year."
(1 US dollar = 102.1900 Japanese yen)
(Additional reporting by Tetsushi Kajimoto and Stanley White;
Editing by Kim Coghill, William Mallard & Shri Navaratnam)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
