The Bank of Japan maintained its record easing, after a U.S. Federal Reserve decision to taper policy helped weaken the yen to a five-year low against the dollar.
Governor Haruhiko Kuroda’s board kept its pledge to expand the monetary base by an annual 60 trillion to 70 trillion yen ($670 billion) today after a two-day meeting in Tokyo, in line with forecasts of all 35 economists surveyed by Bloomberg News.
Kuroda’s push for 2 percent inflation underscores the difference in policy direction between the BOJ and the Fed, which could end its bond-purchase program next year. While Kuroda said the BOJ isn’t targeting foreign exchange rates, the yen’s 17 percent slide against the dollar this year is fueling consumer price gains and boosting profits, aiding Prime Minister Shinzo Abe’s bid to end 15 years of deflation.
“The correction of an excessively strong yen has been a plus for Japan’s economy,” Kuroda said at a press conference after the meeting. “Corporate profits have been boosted, sentiment among economic players has turned positive, stocks have risen and growth has accelerated.”
The yen fell 0.2 percent to 104.43 against the dollar as of 5:05 p.m. in Tokyo, after earlier reaching 104.59, its weakest level since 2008.
“The wind is at the BOJ’s back,” Hideki Matsumura, senior economist at Japan Research Institute Ltd. in Tokyo, said before today’s decision. “The Fed’s action confirms that the yen will stay on a weakening trend and a U.S. recovery will help lift Japan’s exports.”
Japan’s economy will continue a moderate recovery even with an increase in the sales tax in April, Kuroda said. The central bank will monitor risks and adjust monetary policy as needed, he said.
Inflation expectations appear to be rising, with gains in core consumer prices at around 1 percent, the BOJ said in a statement after the meeting. Last month, the central bank said changes in the CPI were “in the range of 0.5-1.0 percent.”
The BOJ said the year-on-year rate of increase in the core CPI is likely to rise “for the time being,” dropping a reference to the word “gradually” that it used last month.
The change in language indicates that the BOJ is more cautious on prices than it was last month and isn’t so sure about price gains from April, said Masayuki Kichikawa, chief Japan economist at Bank of America Corp. in Tokyo.
Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo, said he interpreted the BOJ’s comments on prices as more upbeat than in last month’s statement.
Core consumer prices, the BOJ’s main inflation gauge that strips out fresh food, are forecast to rise 1.1 percent from a year earlier in November, accelerating from a 0.9 percent gain in October, according to a Bloomberg News survey of economists.
Kuroda said there was no change in his view that Japan will reach the BOJ’s 2 percent inflation target.
Twenty seven of 35 economists surveyed by Bloomberg News this month forecast Japan’s central bank will add stimulus after April, with many of those polled seeing the next step as increased purchases of risk assets and government bonds. Only two analysts project price rises will reach the BOJ’s 2 percent target by the end of the fiscal year ending March 2016.
BOJ officials see significant scope to boost government bond purchases if needed to achieve the price target, according to people familiar with the discussions.
The Fed on Dec. 18 announced plans to trim its monthly bond purchases to $75 billion from $85 billion. It is likely to reduce its buys in $10 billion increments over the next seven meetings before ending the program in December 2014, according to economists surveyed by Bloomberg News.
While the BOJ will continue its unprecedented easing until stable 2 percent inflation is secure, the Fed’s tapering offers a useful reference for the BOJ, Kuroda said.
Abe’s drive to end deflation with monetary stimulus and fiscal spending have helped boost corporate profits. Sentiment (JNTSMFG) of large manufacturers rose to a six-year high this month, according to the BOJ’s Tankan survey this week.
Still, companies are cautious on business investment and raising wages. Salaries extended their longest tumble since 2010 to 17 months in October even as companies cash holdings reached a record high last quarter.
Government, business and union leaders, who met today for a fifth time as Abe tries to build a consensus on the need for higher salaries, issued a joint statement saying increased profits should be linked to higher wages.
Japan can’t wait one or two years for salary gains, which are needed soon for the economy to enter a virtuous cycle of rising profits, wages and economic growth, Deputy Economy Minister Yasutoshi Nishimura told reporters today.