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Published On: Thu, Sep 4th, 2014

BOJ maintains record stimulus as Kuroda helps Japan’s PM Abe to revive the country’s economy

The BOJ record stimulus is maintained in a striving to further boost inflation and economic momentum, after the higher sales tax impact; the bank is purchasing record amounts of financial assets, including government bonds, to bring back life into the economy.

BOJ maintains record stimulus as Kuroda helps Japan’s PM Abe to revive the country’s economy

The Bank of Japan’s record stimulus was maintained to continue boosting inflation and economic momentum which was undermined by a higher sales tax.

BOJ stated today that according to its promise, it increased the monetary base, by 60 to 70 trillion yen annually ($667 billion). Governor Kuroda’s efforts to boost faster price hikes are impeded by the tax hike which generated severe contraction. BOJ is having difficulties in achieving the inflation target set. The decline in housing investment is continuing and production is sluggish.

Consumer spending and factory output fell short of forecasts in July; auto sales slumped to a three-year low in August. These are signs of weakness in the quarter after the economy shrank by an annual 6.8 percent following the sales-tax increase in April. Wages rose from a year earlier, by 2.6 percent in July, the fastest since 1997; yet inflation, including the higher tax, was 3.4 percent, undermining consumers’ purchasing power.

The USD/JPY hardly changed and was trading at 104.80 as of 12.30 pm in Tokyo. After its close yesterday at the highest value in almost eight months, the Topix index of shares declined by 0.4 percent.

BOJ is facing challenges owing to the economic weakness and is purchasing record amounts of financial assets including government bonds. Kuroda comes to the aid of Japanese PM Shinzo Abe to bring to life the country’s economy, the world’s third largest. By year-end Abe will decide if he will proceed raising sales tax by 2 more percentage points to reach 10 percent next year, depending on the resilience of growth in the third quarter. BOJ officials expect him to go on with the increase, as the bank needs confidence in government finances sustainability. If necessary, the bank will boost stimulus should the economy need it after a higher tax.

On August 22 Kuroda stated the bank was ready to adjust the policy to keep track of inflation and maintain it according to BOJ target. Kuroda forecasted consumer price gains would attain the goal of 2 percent, so that excludes the impact of higher sales tax. The BOJ remains optimistic towards meeting its goal, on the basis of a weak yen and wage improvement.

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