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Bank of Japan boosts economy, inflation view

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(Globalpost/GlobalPost)

The Bank of Japan on Friday boosted its inflation and economic growth projections for the world's third-largest economy as it eyes an end to years of deflation.

The semi-annual report, which came as the BoJ stood pat on new policy measures, estimated 2.9 percent growth in the economy for the fiscal year to March, up from an earlier 2.3 percent projection made in January.

It also tipped inflation to hit 0.7 percent, also up from an earlier 0.4 percent projection.

"Japan's economy has stopped weakening and has shown some signs of picking up," the BoJ said in its report, pointing at a likely rise in business investment and private spending as consumer sentiment improves.

The bank said there was also likely to be a spike in demand ahead of tax increases that would see Japan's national sales tax double to 10 percent by 2015 as Tokyo tries to pay down a huge national debt as social security costs soar due to a rapidly ageing population.

Also Friday, the BoJ held off announcing any new policy measures as it wrapped up its first meeting since unveiling a huge stimulus package this month aimed at stoking the economy and beating years of falling prices.

In a brief, two-paragraph statement the central bank said its widely expected decision to stand pat was reached by a unanimous vote by its board.

Earlier Friday, the tough task ahead for the bank and government in their fight against deflation was highlighted by March data showing core consumer prices, which exclude volatile prices of fresh food, fell 0.5 percent on-year.

Earlier this month, the central bank's new management team -- hand picked by Prime Minister Shinzo Abe -- embarked on a new era of huge spending by announcing a massive stimulus programme.

At his first meeting as BoJ governor Haruhiko Kuroda, a staunch critic of the previous BoJ's efforts to kickstart the economy, said he would double the money supply and vowed no let-up in the fight to reverse falling prices.

The bank also pledged to meet a two percent inflation target within two years, a key aim of the government.

Deflation is bad for the economy because it encourages consumers to put off spending in the belief their intended purchases will be cheaper in the future, softening demand and hurting producers.

The yen has weakened by about a fifth since November, when Abe vowed in opposition to follow an aggressive monetary easing policy by ramping up spending and fuel inflation.

In Tokyo forex trade Friday, the dollar bought 98.63 yen, well up from a record low around the 75 level in late 2011.

However, some economists have warned that the new policies may not reflate the economy and could lead to bigger problems down the line.

Years of ineffective pump-priming by successive governments have left Japan with a mountain of debt around twice the size of its economy, the worst ratio among industrialised nations.

Its ageing citizens are increasingly drawing down on their savings -- much of which is tied up in government bonds -- shrinking the pool of money the state can readily tap to fund the growing social security costs.

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http://www.globalpost.com/dispatch/news/afp/130426/bank-japan-boosts-economy-inflation-view