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BoJ Keeps Monetary Policy Steady; Sees Inflation Nearing Target In 2015

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Japan's central bank on Friday unanimously decided to keep its monetary policy unchanged and indicated that inflation may reach its 2 percent target in 2015, though economic activity may start recovering by the middle of this year.

In a brief statement today, the central bank reiterated that "the Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about JPY 60-70 trillion."

The decision to double the monetary base by end-2014 was taken at the previous Policy Board meeting that took place earlier this month. At that meeting itself, the Board switched its main operating target for money market operations to the monetary base from the uncollateralized overnight call rate.

In its outlook for economic activity and prices published today, the central bank raised its forecasts for economic growth and consumer prices.

The annual rate of change in the core consumer price index, which excludes fresh food, is expected to turn positive in fiscal 2013 and remain a little higher than projected in January.

The BoJ now expects core inflation, excluding the effects of a planned hike in the consumption tax, to reach 1.9 percent, close to the target, in fiscal 2015. Excluding the effects of tax hike, consumer prices are forecast to rise 1.4 percent in fiscal 2014, faster than previous prediction of 0.9 percent.

The Core CPI is now seen rising 0.7 percent in fiscal 2013 percent compared with the January forecast of 0.4 percent. The outlook for fiscal 2014 was also raised and the bank expects prices to rise 3.4 percent, faster than 2.9 percent increase projected previously. By fiscal 2015, core inflation is expected to be around 2.6 percent.

In another report today, the Statistics Bureau said that Japan's core consumer prices fell 0.5 percent year-on-year in March, posting the steepest decline in two years.

Meanwhile, BoJ said Japan's economy may return to a moderate recovery path around mid-2013. The improvement will be supported by resilient domestic demand and growth in overseas economies.

"The economy has stopped weakening and has shown some signs of picking up," the report said.

The bank upgraded its gross domestic product forecast for fiscal 2013 to 2.9 percent growth from the January projection of 2.3 percent growth. For fiscal 2014, growth is seen at 1.4 percent, stronger than the previously forecast 0.8 percent.

However, the central bank warned there is a risk that even if the growth rates of overseas economies rise as expected, Japan's exports and industrial production might not be able to fully enjoy the benefits of higher growth in the case of a relative delay in the recovery of business fixed investment worldwide.

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