"The economy is much weaker than expected and it will become clearer that the economy and inflation are veering away from the BOJ's scenario"
- Takuji Aida, an economist at Societe Generale SA
Despite the recent downbeat data, which showed the Japanese economy slipped into recession, the Bank of Japan decided to keep its monetary policy and its optimistic economic outlook unchanged, allowing some time to assess the effect of its unexpected easing last month. The central bank believes that the downturn caused by sales tax increase will be short-lived, thus the economy will continue to enjoy a moderate recovery going on forward. Nevertheless, the upbeat view contrasts with a Prime Minister Shinzo Abe's statement that the nation's economy is not strong enough to proceed with a second tax hike initially scheduled for next year. The BoJ Governor Haruhiko Kuroda did not criticize though Abe's decision to delay a tax increase that the central banker had supported as a required budget-balancing move.
As widely expected, the BoJ decided by a majority of policy makers to continue its purchases of government bonds and risky assets, keeping its pledge of increasing base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen. In addition, the central bank upgraded its outlook on exports, noting that "exports have been more or less flat." However, the central bank warned inflation could slow to below 1% , after the economy shrank an annualized 1.6% last quarter.
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