"Weak exports alone will not prompt the Bank of Japan to ease policy, but if consumer spending also weakened, then expectations for a policy change would increase"
- Yasuo Yamamoto, senior economist at Mizuho Research Institute
Japan's officials are getting less confident in their own assessment on exports after having erred on the side of optimisms for more than a year after launching unprecedented stimulus programme in April 2013. The re-assessment of exports outlook during the upcoming meeting on August 7-8 is almost guaranteed, especially keeping in mind slowing inflation in the fact of a higher tax burden. Japan's shipments plunged for a second straight quarter in the three months through June, again coming as disappointment, as one of the top priorities was a boost in exports. During July's policy meeting the BoJ said that exports have recently levelled off, while in March they lowered their exports outlook. It is still unclear whether officials will change the wording next week, however, other reports like industrial output will also have a significant impact. This indicator is a good proxy of the strength of overseas demand for goods produced in the world's third largest economy.
Despite worrying signs from the trade sector, the central bank is confident in meeting its pledge to achieve the 2% inflation target, on the back of strong business and government spending, which both will be supporting the economy until consumption rebounds. Nevertheless, the failure of exports to rebound could discourage Japan's manufacturers from investing, negatively affecting the growth in jobs and wages.
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