BOJ set to maintain monetary easing

Kyodo

The Bank of Japan started a two-day policy meeting Monday, with policymakers expected to keep intact ultraloose monetary easing to beat deflation while discussing the possible adverse impact of the April 1 sales tax hike.

The nine-member Policy Board is expected to maintain its assessment of the domestic economy, saying that it is recovering moderately. In its statement, the board is also expected to include a description of the economic effects of the hike in the consumption tax from 5 percent to 8 percent.

The central bank forecasts sales of household goods will drop in April and that those of durable goods such as vehicles and electric appliances will decline through June.

The BOJ, meanwhile, is likely to carefully assess developments related to domestic demand, as a prolonged slump in consumer spending in the summer and beyond could have a bigger impact on prices and the broader economy than the central bank currently anticipates.

The meeting comes after the BOJ’s Tankan quarterly business sentiment survey released last week revealed wariness among companies about prospects for the economy, mirroring concerns about weakening demand in reaction to last-minute buying prior to the tax hike.

The March survey showed major manufacturing firms expect sentiment, as shown in a diffusion index, to deteriorate by 9 points to plus 8 in the next three months, while large nomanufacturing firms expect sentiment to worsen by 11 points to plus 13.

Just over a year has passed since the BOJ embarked on drastic monetary easing to overcome nearly two decades of deflation, featuring massive purchases of government bonds to double the monetary base to ¥270 trillion as of the end of this year.