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BoJ Holds Monetary Policy Steady; Keeps Inflation, Growth Forecasts Unchanged

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The Bank of Japan on Wednesday decided to keep its monetary easing plan unchanged and retained its inflation forecasts for the next two years, strengthening expectations that the central bank may keep the policy steady at least for now, with consumer prices evolving in line with its forecasts.

At the end of a two-day meeting of the nine-member Policy Board, led by Governor Haruhiko Kuroda, the central bank said it will keep the target of the monetary base expansion at an annual pace of JPY 60-70 trillion.

The Board said that the economy has continued to recover moderately, but observed that there has been a front-loaded increase in demand ahead of April's consumption tax hike. Overseas economies, particularly advanced economies, are starting to recover, despite overall "lackluster performance".

The central bank's growth estimate for fiscal 2013 remained unchanged at 2.7 percent growth it forecast in October, while the outlook for fiscal 2014 was downwardly revised to 1.4 percent from 1.5 percent.

The gross domestic product is forecast to expand at a steady pace of 1.5 percent in fiscal 2015.

However, the recovery "will be affected by the front-loaded increase and subsequent decline in demand
prior to and after the consumption tax hike," the Board noted.

The BoJ's inflation outlook also remained unchanged. The core consumer price index is projected to rise 0.7 percent in fiscal 2013 and 3.3 percent in fiscal 2014. The rate of inflation will then moderate to 2.6 percent in fiscal 2015.

Excluding the impact of the sales tax hike, the core CPI is projected to rise 1.3 percent in fiscal 2014 and 1.9 percent in fiscal 2015, unchanged from the October predictions.

According to official data, Japan's core consumer price index, excluding fresh food, rose 1.2 percent year-on-year in November, marking the sharpest increase in five years. The BoJ set a price stability target of 2 percent in April last year.

Last week, the Japanese government upwardly revised its assessment of the economy for the first time in four months as the recovery picked up reflecting improvement in household income and business investment.

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