TOKYO: The Bank of Japan (BOJ) has maintained its massive stimulus programme and offered a slightly more upbeat view of the world’s third-largest economy, as a modest rebound in consumption helped service-sector sentiment improve to a one-year high.
A Reuters poll showed retailers’ mood turned positive in May and hit the highest level since June last year, when sales were reeling after a sales tax increase.
That added to some signs of hope from Wednesday’s data that showed Japan’s economy expanded at the fastest pace in a year in January-March due to modest increases in private consumption,which makes up roughly 60% of GDP.
The central bank in Japan revised up its assessment on household spending and housing investment – two components hit most by last year’s sales tax hike – underscoring its conviction that the economy has emerged from the doldrums.
“Private consumption is firm reflecting steady improvements in job and income conditions. Housing investment is bottoming out and showing signs of a pick-up,” the BOJ said in a statement announcing its decision to hold policy steady. But some analysts were puzzled with the BOJ’s optimism given the modest pace of recovery.
“If you look at the data, the trend for the economy has not improved as much as the BOJ’s upgrades would suggest, so I find this move a little hard to understand,” said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
“We still expect the debate about additional easing to heat up again this autumn, because consumer prices are not likely to rise as fast as the BOJ expects”, he added.
As widely expected, the BOJ maintained its pledge of increasing base money at an annual pace of 80 trillion yen (€594bn) through aggressive asset purchases.
“Japan’s economy continues to recover moderately,” the central bank said, slightly revising up its view from last month when it said the economy was recovering moderately “as a trend.”
The Reuters Tankan, which closely tracks the BOJ’s quarterly tankan survey, showed that manufacturers are more up beat about business and expect conditions to improve further. An index measuring service-sector sentiment rose to the highest level since April last year.
