Bank of Japan holds policy steady, but notes spending remains subdued

Investing.com - The Bank of Japan board Wednesday decided by an 8 to 1 vote to leave the bank's policy target unchanged and upgraded its assessment of exports and factory output, while warning consumption has been hit by a April 2014 sales tax hike.

Board member Takahide Kiuchi remained opposed to the Oct. 31 easing. He continued to propose the BoJ should maintain the high degree of easing only during the two-year period from April 2013 so that it is not overdone. But his proposal was again voted down by the rest of the board.

The collapse of crude oil prices last year has clouded the prospect for the central bank plan to anchor 2% inflation "in about two years" from April 2013, when it launched aggressive easing, even though the definition of the time frame has been effectively stretched to about three years.

The bank repeated its near-term inflation outlook after revising it down last month, saying, "The year-on-year rate of increase in the CPI is likely to slow for the time being, reflecting the decline in energy prices."

The BoJ board still believes that "Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective."

On the monetary policy target, the BoJ repeated it will "conduct money market operations so that the monetary base will increase at an annual pace of about ¥80 trillion" and that its financial asset purchases will also proceed after they were expanded on Oct. 31.

"Japan's economy has continued its moderate recovery trend," it said, more or less repeating its recent assessment but leaving out its observation that the pullback in domestic demand caused by the tax hike has been waning.

But the board acknowledged the weakness in consumer spending, as seen in slower-than-forecast growth in the latest GDP data.

"Private consumption as a whole has remained resilient against the background of steady improvement in the employment and income situation, although recovery in some areas has been sluggish."

Japan's total domestic output posted a solid 0.6% growth on quarter, or an annualized 2.2%, in October-December for the first rise in three quarters, overcoming a technical recession, thanks to a gradual pickup in consumption and exports, data released Monday showed.

BoJ Governor Haruhiko Kuroda will hold a news conference from 1530 JST (0630 GMT) to 1615 JST (0715 GMT) to discuss the board's decision.