The Bank of Japan on Thursday decided to keep its stimulus program and key interest rate unchanged as the economy is expected to undergo a moderate recovery path.
The benchmark uncollateralized overnight call rate was kept steady at 0-0.1 percent and the total size of the stimulus program was maintained at JPY 70 trillion with the asset purchases of JPY 45 trillion and the credit facility of JPY 25 trillion.
The central bank retained its assessment that the economy has started to pick up moderately and is likely to return to a moderate recovery path as demand recovers.
However, the pace of growth in exports moderated and production remained weak. Business investment has been on an upward trend due to higher corporate profits. Private consumption rose reflecting an improvement in consumer confidence and government's measures to boost demand for automobiles.
The board reiterated that a high degree of uncertainty persisted with regard to global economy, mainly on account of debt crisis in Europe.
The Policy Board noted that financial conditions in Japan remained accommodative. The bank said it will continue to ensure the stability in the financial system, while paying due attention to developments in European markets.
BoJ said it has been pursuing powerful monetary easing and providing support to strengthen the foundations of economic growth. The bank vowed to conduct monetary policy "in an appropriate manner" and continue monetary easing by steadily increasing the Asset purchase Program.
Future developments in global commodity prices and medium- to long-term inflation expectations should be monitored carefully, the board said. BoJ forecasts inflation to remain at around zero for the time being.
In July, the central bank cut its inflation forecasts for fiscal 2012 to 0.2 percent from April's projection of 0.3 percent. The 2013 forecast remained unchanged at 0.7 percent.
The bank had also lowered its fiscal 2012 growth forecast for the economy to 2.2 percent from the 2.3 percent projected in April. The outlook for fiscal 2013 was left unchanged at 1.7 percent.
The International Monetary Fund said in a recent report that the Japanese economy may expand 2.5 percent in 2012 helped by substantial public reconstruction spending of around 1.5 percent of GDP and recovering consumer demand.
At the same time, weak external demand is likely to weigh on exports and private investment. The recovery is forecast to slow in 2013 to 1.5 percent, as reconstruction winds down.
The IMF report suggested that further monetary easing may be needed as part of a comprehensive package of policies to defeat deflation, particularly if the growth outlook worsens.
by RTT Staff Writer
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