Bank of Japan Governor Haruhiko Kuroda recently suggested that the central bank may introduce a new round of monetary easing if the country cannot manage deflation after a tax increase in April.
The BoJ recently announced it would maintain its current policy, which it has done since April, and continue to purchase assets at a rate of between $596 billion and $695 billion per year. It also maintained its positive view of the domestic economy, pointing to a pickup in business investments and inflation expectations that “appear to be rising,” Financial Times reports.
Kuroda said after the announcement, however, that the central bank would take additional action if the economy failed to keep in line with its projections, saying the BoJ “has room to act against upside and downside risks,” according to Financial Times.
Japan’s growth in the first half of the year was the highest of any developed economy, supported by fiscal stimulus and profit-boosting resulting from a weaker yen.
While the Japanese government said in September that the economy was on track to recover “at a moderate pace, surveys of households and bond market participants indicate that inflation expectations could be on the rise.
“It would appear – at least on the surface – that the ‘sticky’ deflationary psychology . . . that took root during Japan’s 15 years of deflation has finally been wiped away,” Jun Ishii, the chief fixed-income strategist at Mitsubishi UFJ Morgan Stanley, said, Financial Times reports.
Market participants have voiced concern that domestic demand is being pushed by the consumption tax increase scheduled to take effect in April.