"Shirai pointed out the outlook report should reflect more downside risks. That's a sign that the assessment of Japan's economy is becoming more difficult. We have more uncertainties compared with April. "
- Naoki Iizuka, an economist at Citigroup Inc.
It was not a surprise for markets that the Japanese central bank reiterated its pledge to continue its task of ending decades of deflation and weak growth by doubling the country's monetary base over a two-year period. The Bank of Japan maintained its unprecedented stimulus programme, increasing monetary supply by 60-70 trillion yen per year, while interest rates also remained unchanged. The BoJ also said they expect inflation of 1.9% in the 2015 fiscal year, excluding the effect of sales tax increases. Despite the fact that it was a likely outcome, investors eyed the possibility of upgrading BoJ's growth outlook, as the economy is performing rather well. The central bank revised up its economic outlook for the next year beginning next April to 1.5%, while this year the economy is likely to expand 2.7%. So far the ultra-loose monetary policy, coupled with the government's fiscal adjustments, has given Japanese economy a massive boost, with most fundamental data turning up over recent months. Nevertheless, tensions over Abenomics spilled into the open on Thursday, as three out of nine board members reiterated objections to the central bank's growth and price forecasts. Takahide Kiuchi, Takehiro Sato and Sayuri Shirai were dissented, as they were expressing doubts over the BoJ's ability to reach its 2% target. However, these proposals were all defeated, as the majority of BoJ's members are supporting current measures, considering them as appropriate.
© Dukascopy Bank SA