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BOJ Kuroda upbeat on economy, "Abenomics" effect broadening

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(Globalpost/GlobalPost)

By Leika Kihara

TOKYO (Reuters) - Bank of Japan Governor Haruhiko Kuroda claimed some success for the central bank's aggressive monetary stimulus on Thursday, saying that the economy is on track to a steady recovery with signs inflation expectations are picking up.

Speaking at a quarterly meeting of the BOJ's regional branch managers, Kuroda reiterated the central bank's commitment to maintain its ultra-easy monetary policy until its 2 percent inflation target is achieved in a stable manner.

"Japan's economy is steadily heading towards a recovery since we adopted our qualitative and quantitative monetary easing in April," Kuroda said.

"We're seeing the effect of our policies, such as indicators suggesting an increase in inflation expectations."

In a quarterly report issued after the branch managers' meeting, the BOJ revised up its assessment for eight of Japan's nine regions, a sign the positive effects of Prime Minister Shinzo Abe's reflationary policies are broadening. It was the first time in nearly four years the central bank revised up its assessment for eight or more regions for two straight quarters.

Central bankers are increasingly convinced that the economy is on track to meet the central bank's projection of a moderate recovery around mid-year, which will be the backdrop for the BOJ's monetary policy meeting next week.

The BOJ is expected to stand pat at its rate review next week and revise up its view of the economy, sources familiar with its thinking say, on growing evidence that the weak yen and the government's reflationary policies are supporting exports and private consumption.

CHINA RISK LOOMS

Japan's economy grew at an annualized 4.1 percent in the first quarter. It is likely to sustain strength with exports in May rising at the fastest annual pace in more than two years on robust auto sales in the United States, and the benefits of a weak yen.

The positive momentum accelerated after the BOJ unleashed an intense burst of monetary stimulus on April 4, pledging to double its bond holdings to meet its 2 percent inflation target in roughly two years.

Big manufacturers' mood turned positive in the three months to June for the first time in nearly two years, the BOJ's "tankan" survey showed on Monday, a sign recent market turbulence has yet to hurt the feel-good mood created by Abe's aggressive stimulus plans.

Abe's policies, dubbed "Abenomics," and a rallying stock market have also spurred consumer spending. Retail sales rose 0.8 percent in May from a year earlier, after four straight months of declines, data showed last week.

Japan's Seven and I Holdings Co Ltd <3382.T>, owner of the 7-Eleven convenience store chain, said on Thursday it posted a 9.5 percent rise in first-quarter profit which was its highest on record for the traditionally quiet March-May period.

But the improvement in sentiment has yet to nudge companies to increase wages and jobs, casting doubt on whether the recent strength in consumer spending is sustainable. Wages showed no annual growth for the second straight month in May.

In the BOJ regional report, six out of the nine regions revised up assessments of household spending and income conditions. Some regions said consumers were spending more on luxury watches and cars, as well as on travel and dining.

But Shigeki Kushida, who as head of the BOJ's Osaka branch that oversees the Kinki western Japan region, said average-income households were not increasing spending yet, unconvinced that the economic recovery will lead to higher income.

While companies in the Kinki region, home to electronics majors such as Panasonic Corp <6752.T>, are enjoying the benefits of a weak yen and firm exports, they are worried about the outlook - particularly slowing demand in China, he noted.

"Companies are cautious about the outlook, disappointed by the weaker-than-expected demand in China. Exports are picking up, but it's hard to expect any sharp rise."

(Reporting by Leika Kihara; Editing by Edmund Klamann and Eric Meijer)

http://www.globalpost.com/dispatch/news/thomson-reuters/130703/boj-kuroda-upbeat-japan-economy-inflation-outlook