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 Signalling its confidence the world's third-largest economy is out
of the doldrums, the central bank revised up its assessment on
private consumption and housing investment - areas hardest hit by
last year's sales tax hike.
Underscoring the optimism, a Reuters poll showed retailers' mood
turned positive in May and hit the highest level since June last
year, when sales were reeling after the tax increase.
That followed data on Wednesday which showed Japan's economy
expanded at the fastest pace in a year in January-March due to
modest increases in private consumption, which makes up roughly 60
percent of GDP.
Governor Haruhiko Kuroda said consumption is set to increase as
wages rise, keeping Japan on path to hit the BOJ's 2 percent
inflation target around the six months to September 2016.
"Both for households and companies, a positive cycle is kicking in,"
where increases in income are leading to higher spending, he told
reporters after the meeting.
"We expect trend inflation to improve steadily, so we're not
thinking about additional monetary easing now."
Kuroda reminded markets, however, that the BOJ was ready to expand
stimulus again if the economy falters and threatens to disrupt the
broad uptrend in inflation.
GLIMMER OF HOPE?
As widely expected, the BOJ maintained its pledge of increasing base
money at an annual pace of 80 trillion yen ($662 billion) through
aggressive asset purchases.
"Japan's economy continues to recover moderately," the central bank
said, a slightly more optimistic tone than last month when it said
the economy was recovering moderately "as a trend."
Consumption is firm and housing investment is bottoming out with
some signs of a pick-up, the BOJ said, offering a brighter view than
last month.
Some analysts, however, were puzzled with the BOJ's optimism given
the modest pace of recovery, particularly in consumption.
"If you look at the data, the trend for the economy has not improved
as much as the BOJ's upgrades would suggest, so I find this move a
little hard to understand," said Shuji Tonouchi, senior fixed income
strategist at Mitsubishi UFJ Morgan Stanley Securities.
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"We still expect the debate about additional easing to heat up again
this autumn, because consumer prices are not likely to rise as fast
as the BOJ expects."
Barclays Capital also expected the BOJ would have to ease policy
again, although following Kuroda's comments it pushed back its
forecast for the timing of such a move from July to April 2016.
The Reuters Tankan, which closely tracks the BOJ's quarterly tankan
survey, showed on Friday that manufacturers are more upbeat about
business and expect conditions to improve further.
An index measuring service-sector sentiment rose to the highest
level since April last year.
The BOJ bought itself some breathing space last month when it pushed
back the timing for hitting its inflation target.
But the move also put its credibility on the line as it jarred with
its commitment to achieve the price target in "roughly two years"
since deploying the stimulus in April 2013.
Kuroda has voiced confidence the stimulus was succeeding in keeping
the economy on track to hit the price target. But markets are
unconvinced, with a majority of analysts in a Reuters poll betting
on further easing in October.
(Additional reporting by Stanley White, Mari Saito and Izumi
Nakagawa; Editing by Kim Coghill)
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