"Japan's economy has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed"
- Bank of Japan
The Bank of Japan stayed pat on its very loose policy stance, but revised slightly its growth forecast for the 2014 financial year and stuck to its outlook that inflation will move towards its 2% goal next year. The central bank kept its pace of annual increase in the monetary base of between 60 trillion yen and 70 trillion yen via aggressive asset purchases, mostly in the Japanese government bonds. The BoJ also slightly lowered its growth projection for the current financial year to 1.0%, down from 1.1%, but kept its 2015 and 2016 growth outlook intact at 1.9% and 2.1%, respectively. The BOJ has stood pat on policy since launching stimulus in April last year, when it pledged to pull Japan out of decade-long deflation and accelerate consumer inflation to 2% in two years. The central bank expects the core consumer price index to rise 1.3%, adjusted for the tax change, in the ongoing financial year. The board sees inflation of 1.9% in the year through March 2016, and 2.1% for the year ending March 2017. In May Japan's core Consumer Price index rose an annualized 3.4%, however this comes after the government increased sales tax to 8% from 5% on April 1, meaning the real rate of inflation is likely to be below the bank's target rate.
The stimulus helped trigger an 18% slide in the Japanese Yen versus the U.S. Dollar and boosted share prices last year. The currency has since strengthened about 4% and the Topix index has declined.
© Dukascopy Bank SA