The Bank of Japan maintained its record easing today after a Fed decision to taper policy helped weaken the yen to a five-year low against the dollar.
The board of the governor, Haruhiko Kuroda, kept its pledge to expand the monetary base by an annual 60 trillion to 70 trillion yen (Dh2.11 trillion) after a two-day meeting in Tokyo, in line with economists’ forecasts.
Mr Kuroda’s push for 2 per cent inflation underscores the difference in policy direction between the BOJ and the Fed, which could end its bond-purchase programme next year.
While Mr Kuroda said the BOJ was not targeting foreign exchange rates, the yen’s 17 per cent slide against the dollar this year is fueling consumer price gains and boosting profits, aiding the bid of the prime minister, Shinzo Abe, to end 15 years of deflation.
“The correction of an excessively strong yen has been a plus for Japan’s economy,” Mr Kuroda said. “Corporate profits have been boosted, sentiment among economic players has turned positive, stocks have risen and growth has accelerated.”
The yen fell 0.2 per cent to 104.43 against the dollar after reaching 104.59, its weakest level since 2008.
“The wind is at the BOJ’s back,” said Hideki Matsumura, a senior economist at the Japan Research Institute in Tokyo. “The Fed’s action confirms that the yen will stay on a weakening trend, and a US recovery will help lift Japan’s exports.”
Japan’s economy will continue a moderate recovery even with an increase in the sales tax in April, Mr Kuroda said. The central bank will monitor risks and adjust monetary policy as needed.
Inflation expectations appear to be rising, with gains in core consumer prices at about 1 per cent, the BOJ said, a number at the top of a range predicted last month.
Core consumer prices, the BOJ’s main inflation gauge that strips out fresh food, are forecast to rise 1.1 per cent from a year earlier in November, accelerating from a 0.9 percent gain in October, according to economists.
Mr Kuroda said there was no change in his view that Japan would reach the BOJ’s 2 per cent inflation target.
The Fed on Dec. 18 announced plans to trim its monthly bond purchases to US$75 billion from $85bn. It is likely to reduce its buys in $10bn increments over the next seven meetings before ending the programme in December of next year.
* Bloomberg