Bank of Japan to Keep Upbeat Economic View Despite Soft GDP
The Bank of Japan is expected to keep monetary policy steady on Tuesday and maintain its upbeat view on the economy, unfazed by recent signs of slower growth and suggesting that any additional stimulus will be some time away.
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.
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 scrutinise 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.
(By Leika Kihara)