• Bloomberg


The Bank of Japan kept its record stimulus unchanged Thursday as Gov. Haruhiko Kuroda looks to keep stoking inflation and boost economic momentum that’s been sapped by a higher sales tax.

The bank kept its pledge to increase the monetary base at an annual pace of ¥60 trillion to ¥70 trillion, in line with all 31 economists surveyed by Bloomberg.

Kuroda’s bid to spur faster price gains is facing stiffer headwinds after the April consumption tax hike triggered the steepest contraction since the March 2011 disasters.

The higher cost of living is crimping consumption, while the yen’s 5 percent fall over the past year is failing to ignite export growth and fuel production.

“The wind is turning against the BOJ,” said Tsuyoshi Ueno, an economist at NLI Research Institute in Tokyo, before Thursday’s decision. Tepid consumer spending and production are making it harder for the BOJ to achieve its inflation target, he said.

Households’ spending and factory output were weaker than forecast in July, while auto sales fell to a three-year low in August, pointing to weakness this quarter after the economy shrank an annualized 6.8 percent in the three months after the sales tax increase.

While wages rose 2.6 percent in July from a year earlier — the fastest pace since 1997 — inflation including the higher levy was 3.4 percent, eroding households’ purchasing power.

The economic weakness adds to challenges for the BOJ, which is buying record amounts of government bonds and other financial assets as Kuroda aids Prime Minister Shinzo Abe’s effort to resuscitate the economy.

Abe is set to decide by the end of the year whether to go ahead with plans to raise the sales tax by another 2 points to 10 percent next year, taking into account how resilient growth is in the third quarter.

BOJ officials expect Abe to proceed with the increase to maintain confidence in the government’s finances, according to people familiar with the discussions. Some officials said the central bank would be prepared to boost stimulus if necessary should the economy require more support following a higher levy, said the sources, who asked not to be named because the talks are private.

Thirty-two percent of economists see the BOJ increasing its easing by the end of the year, according to a Bloomberg survey conducted Aug. 25 to 29. Twenty-three percent forecast action next April or later, while 26 percent don’t see any extra easing.

Kuroda said Aug. 22 there is no need to change his view on the outlook for the economy and that the BOJ stands ready to adjust policy if needed to keep inflation on track to the bank’s target.

Consumer price gains will reach the 2 percent goal, which excludes the effects of the higher consumption tax, in the middle of the three-year period through March 2017, propelled by rising inflation expectations and an improving job market, Kuroda said after the policy meeting last month.

The BOJ will maintain its optimistic view on achieving its goal, encouraged by the weak yen and improvement in wages, even as inclement weather in August affected the economy, said Masamichi Adachi, an economist at JPMorgan Chase and former BOJ official.

Western Japan, including Osaka, Kyoto and Fukuoka, had a “cold summer” for the first time in 11 years, with the fewest hours of daylight and the most precipitation for August since the Meteorological Agency began collecting data in 1946. In eastern Japan, daylight hours were 29 percent less than an average year.

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