Members of the Bank of Japan's monetary policy board said that Japan's economic activity was showing signs of improvement, minutes from the Bank's meeting on April 9 and 10 revealed on Monday.
But the members cautioned that there was still a high degree of uncertainty regarding the global economy - and Japan still faces the critical challenge of overcoming deflation.
"Overseas economies on the whole still have not emerged from a deceleration phase but U.S. economic conditions have continued to improve moderately and the sluggish European economy has stopped deteriorating," the minutes said. "Global financial markets have generally been stable."
The board also vowed to keep a close eye on international commodity prices, which the members said "required careful attention."
At the meeting, the BoJ maintained its benchmark interest rate near zero and refrained from announcing additional stimulus amid signs that economic activity is gradually gathering pace.
"Japan's economic activity has shown some signs of picking up, although it has remained more or less flat," the minutes said. "Exports have so far remained more or less flat. As for domestic demand, business fixed investment has been on a moderate increasing trend aided by the restoration of disaster-stricken facilities."
Following the end of its two-day monetary policy meeting that ended on Tuesday, the central bank's policy board decided to retain the benchmark uncollateralized overnight call rate at 0-0.1 percent as expected.
The central bank did not enhance the stimulus this month after surprising the markets in February, when asset purchases were increased by JPY 10 trillion. The asset purchase and credit facility were left unchanged at JPY 30 trillion and JPY 35 trillion respectively.
The bank maintained its economic view, saying "Japan's economic activity has shown some signs of picking up, although it has remained more or less flat."
"The goal of overcoming deflation will be achieved both through efforts to strengthen the economy's growth potential and support from the financial side," the minutes said. "With this in mind, the Bank will pursue powerful monetary easing, and will support private financial institutions in their efforts to strengthen the foundations for Japan's economic growth via the fund-provisioning measure to support strengthening the foundations for economic growth."
On the topic of deflation, the BoJ expects the year-on-year rate of change in the consumer price index to remain at around zero for the time being. In February, the BoJ set a numerical inflation target of 1 percent for the first time.
The BoJ also released detailed rules for a new US dollar lending arrangement, equivalent to JPY 1 trillion, a preliminary outline of which was released at the March meeting.
The bank observed that the economy may return to a moderate recovery path along with an improvement in overseas economies. Reconstruction-related demand is also expected to support growth in the coming months.
The BoJ noted that global economies have still not emerged from the soft patch, but U.S. economic conditions have continued to improve moderately. The European economic conditions have stopped deteriorating, the bank said.
"As for the outlook, Japan's economy is expected to return to a moderate recovery path as the pace of recovery in overseas economies picks up, led by emerging and commodity-exporting economies, and as reconstruction-related demand after the earthquake disaster gradually strengthens," the minutes said.
by RTT Staff Writer
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