Japan leaves stimulus unchanged

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Japan leaves stimulus unchanged

The Bank of Japan kept its record stimulus unchanged on Wednesday amid growing speculation that signs of a recession will press it to act at the end of the month.

The immediate focus now turns to Gov. Haruhiko Kuroda’s press conference this afternoon for any hints of an adjustment in monetary policy on Oct. 30, when the central bank will provide an update on its outlook for inflation and economic growth.

The BOJ’s key price gauge fell in August, along with industrial production, raising concerns that Japan may have fallen back into a recession in the third quarter. While more than a third of economists surveyed by Bloomberg think Kuroda may be able to avoid increasing stimulus altogether, a larger number expect him to boost asset purchases at the next meeting of his policy board.

“It would’ve been a surprise if the BOJ had changed its policy today,” said Hideo Kumano, an economist at Dai-ichi Life Research Institute and former BOJ official. “Taking action at the next gathering won’t be a surprise and the focus will be on how they do this,” said Kumano, who sees little alternative for Kuroda except for boosting bond purchases.

The yen strengthened 0.3 percent against the dollar to 119.87 at 12:32 p.m. in Tokyo. The BOJ’s expansive monetary policy has pushed the Japanese currency down 22 percent since April 2013.

Thirty-four of 36 economists surveyed correctly forecast the central bank would leave its policy unchanged Wednesday to keep increasing the monetary base at an annual pace of 80 trillion yen ($660 billion).

Kuroda said last week that he thought it was hard to see the economy contracting in the three months ended September, and that the inflation trend was showing improvement, helped by high corporate profits and the tight labor market. He also added that he wouldn’t hesitate to adjust policy if needed.

Kazuhiko Ogata, an economist at Credit Agricole SA, said Kuroda can move swiftly when he thinks action is required.

While leaving quantitative and qualitative policy unchanged, the BOJ made minor changes to collateral requirements for financial institutions seeking funds through various central bank lending programs. Such changes have been made at the BOJ’s first October meeting for the last few years.

Pressure is also on Prime Minister Shinzo Abe’s government to consider assembling a fiscal stimulus package. Heizo Takenaka, an economic adviser to Abe, is among those who have suggested the need for extra spending.

Inflation excluding fresh food and energy rose 1.1 percent in August, while the measure that strips out only fresh food dropped 0.1 percent, falling below zero for the first time since Kuroda began the unprecedented easing in April 2013.

Production fell 0.5 percent from a month earlier in August, following weaker-than-expected export data as China’s slowdown took its toll. Bloomberg
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