"Our quantitative-easing policy is exerting its intended effects. The Bank of Japan will continue with this policy until the 2 per cent target is achieved in a sustained manner."
- Haruhiko Kuroda, Bank of Japan governor
During the latest monetary policy meeting the central bank kept the monetary policy unchanged and raised its outlook on capital expenditure. The Bank of Japan was reassured by growing evidence the world's third largest economy will be able to withstand the pain from April's tax hike without any fresh stimulus measures.
These comments echoe with the latest report from HSBC, which said Japan's provisional manufacturing output and the number of new orders fell in May, however, at a slower pace. A measure of activity in the manufacturing sector stood at 49.9 in May, hitting the 2-month high and improving from April's 49.4. At the same time, output index improved to 49.2 from 46.2 in the prior month. While a move in both indexes closer to the 50-mark is an optimistic sign, Chris Williamson from Markit believes companies are highly concerned about the demand after the tax hike. These concerns are supported by the latest drop in exports orders, which is a clear sign of softening demand from key trading partners. Therefore, there is a rather high possibility of a significant slowdown in the second quarter. Some companies claimed the weakness will be short-lived, however the cutting of prices and downturn in job creation are indicating the manufacturing sector is preparing for a prolonged period of slower activity and can rebound only in the second half of the year.
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