Japan’s central bank holds fire on new stimulus

The Bank of Japan has left its main policy unchanged and brushed aside calls for more stimulus.

Japanese stocks sank after the Bank of Japan left its policy unchanged. Pic: AFP

The Bank of Japan has left its main policy unchanged and brushed aside calls for more stimulus, which quickly sent the yen up and Japanese stocks down.

The central bank kept its asset purchase target at 80 trillion yen ($US718 billion) a year, a measure aimed at putting more money into circulation to stimulate growth and inflation. The BOJ’s policy board voted 8-1 in favour of maintaining the target.

The BOJ also left unchanged a deposit rate of minus 0.1 per cent — charged on some deposits held by commercial banks — through a 7-2 vote. The subzero rates went into effect in February as part of stepped-up efforts by Tokyo to spur economic activity and price growth by driving down various borrowing costs. The dissenters on the vote called for the bank to return the rate to the previous plus 0.1 per cent.

The central bank’s inaction comes despite a further deterioration in Japan’s economic landscape since the previous policy meeting held in the middle of March. Japan’s economy, the world’s third-largest, is at a risk of shrinking in the current quarter because of earthquakes that hit the nation’s southern areas earlier this month.

The only new element in the BOJ decision was a measure offering aid to areas devastated by recent earthquakes.

The Nikkei Stock Average was down more than 3 per cent in afternoon trading after rising in the morning on anticipation of further BOJ action. The yen, which had stood at around ¥111.70 to the dollar just before the central bank’s statement, quickly rose to around ¥109.20.

The latest inflation figures, released earlier in the day, show consumer prices, including energy prices, fell 0.3 per cent in March compared with year-earlier levels. Inflation expectations among households are also at the weakest level in three years, while wage growth has slowed as the global slowdown makes businesses more cautious.

In the wake of today’s decision, suspicions could grow that the central bank is short of ammunition after three years of all-out efforts to end deflation. Many economists expected additional easing, although they were divided over the specifics. Governor Haruhiko Kuroda was to explain the decision at a news conference scheduled for later this afternoon.

Bank of Japan Governor Haruhiko Kuroda. Pic: AP

The BOJ opened a new lending program worth ¥300 billion to aid regional banks around Japan’s southern island of Kyushu, the epicentre of the recent series of earthquakes.

In a new quarterly forecast released in the day, the BOJ essentially shifted back its forecast date for achieving its 2 per cent inflation target by a half year. The new forecast calls for 2 per cent to be reached between April 2017 and March 2018. It represents the fourth time in a year for the bank to push back the target.

Mr Kuroda toughened his rhetoric about the yen’s renewed strength in the weeks before the policy meeting, adding to expectations for more easing, but other officials signalled little appetite for action as they preferred to spend more time gauging the effects of negative rates. Many experts, including Etsuro Honda, an adviser to Prime Minister Shinzo Abe, also expressed doubts recently that monetary easing alone can jolt an economy or inflation in an era of subpar global growth.

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