The Bank of Japan on Tuesday slightly upgraded its growth forecast for the world’s third-biggest economy but kept its super easy monetary policy unchanged.
The central bank said that after a two-day policy gathering that it now expects a 0.9-percent expansion in the year to March 2021, an upgrade from a previous projection of 0.7 per cent.
The brighter assessment came after a stimulus package launched by prime minister Shinzo Abe last year to prop up the economy and dampen the effects of an October hike in consumption tax from 8 to 10 per cent.
The decision also followed a fresh trade deal clinched between the US and China, easing a concern that had long worried global investors.
‘It is true that the downside risk surrounding the global economy is slightly lower due to... the US-China trade deal and the problem of Britain leaving the EU,’ BoJ governor Haruhiko Kuroda told reporters.
‘Investors’ risk sentiment has improved and stocks and long-term interest rates have risen in many countries,’ he said.
World markets have returned to relative calm after the turmoil caused by the killing of top Iranian general Qasem Soleimani by the US. The strike resulted in limited retaliation and the region has so far avoided an escalation in violence.
‘Japan’s economy has been on a moderate expanding trend... although exports, production and business sentiment have shown some weakness, mainly affected by the slowdown in the global economy and natural disasters,’ the BoJ said.
Nevertheless, the tax hike and natural disasters were weighing on domestic demand, it added.
But demand ‘is likely to follow an uptrend... mainly against the background of highly accommodative financial conditions and active government spending’, it said.
The central bank also reiterated its pledge to continue its easy monetary programme in a drive to achieve 2-per cent inflation for ‘as long as it is necessary’.
However, it dropped its inflation forecast to 1.0 per cent from an earlier estimate of 1.1 per cent.
The bank ‘will not hesitate to take additional easing measures’ if necessary, it added.
Kuroda also said that the bank would continue monitoring global risks.
‘There are still conflicts between the US and China and I think the path towards the second-stage agreement is unclear. And geopolitical risk surrounding the Middle East is rising,’ he said.
‘I think the downside risk is still large.’
On the outbreak of a new SARS-like virus in China, Kuroda said it is ‘too early to predict’ any possible economic impact.
‘At the moment, I don’t think it’ll have a big impact like SARS or bird flu but we’ll monitor the situation carefully.’
Want stories like this in your inbox?
Sign up to exclusive daily email
More Stories from Banking