Japan's central bank announced on Thursday its decision to keep its monetary easing program unchanged, as the economy has begun to recover moderately and inflation data has turned positive.
At the end of a two-day meeting, the nine-member Policy Board led by Governor Haruhiko Kuroda decided to retain its plan to increase the monetary base at an annual pace of JPY 60-70 trillion.
The massive monetary easing program was launched in April soon after Kuroda took charge as BoJ Governor. The program, one of the 'three arrows' devised by Prime Minister Shinzo Abe, was aimed at reversing 15 years of deflation in the economy.
Recent economic developments have vindicated Abe's radical policy steps, at least partly. Data revealed last month that core consumer prices in the country increased at the fastest pace in four and half years in June.
Earlier this week, the International Monetary Fund urged the Japanese authorities to fully implement the 'three arrows' of his plan to revive growth and exit deflation. At the same time, the Washington-based lender warned of risks if the government fails to rein in the mounting debt.
At the meeting, the Board also retained its view that the economy is starting to recover moderately. The policymakers said that the year-on-year change in the consumer price index has turned positive and inflation expectations are rising.
The BoJ expects the economy to continue recovering moderately while the annual rate of increase in CPI is seen rising gradually going forward.
The bank noted that overseas economies are gradually heading towards a pick-up, although a lackluster performance is observed in some regions. Exports are picking up, while private consumption remained resilient, the bank noted.
Business fixed investment has stopped weakening, while also showing some signs of a pick up along with an improvement in corporate profits. Industrial production is increasing moderately, the Board observed.
The policymakers viewed the European debt problem, developments in the emerging and commodity-exporting economies and the pace of U.S. recovery as risks to Japan's economic outlook.
Meanwhile, the Japanese government on Thursday endorsed a medium-term fiscal reform plan, pledging to halve the country's budget deficit to around JPY 17 trillion or 3.3 percent of gross domestic product by fiscal 2015.
The plan assumes that the government will increase the consumption tax to 8 percent in April 2014 and then to 10 percent in October 2015 from the current 5 percent.
The IMF in a report released on August 5, recommended fiscal consolidation of 11 percent over the next decade to bring Japan's public debt-to-GDP ratio on a downward path. The IMF had also urged Japan to implement the planned two-stage sales tax hike by 2015.
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