BOJ Could Be Called Into Action if Japanese Exports Continue To Fall

The Bank of Japan is increasingly confident that the economy is weathering a recent tax increase and is on its way out of deflation, but another threat to that optimistic scenario is lurking – weak exports.

If shipments abroad continue to fall short of the central bank’s forecasts, the recovery in the world’s third-biggest economy could stall and the BOJ might be forced to ease policy again in the coming months.

Growth has returned to Japan, helped greatly by massive monetary stimulus unleashed 13 months ago when Haruhiko Kuroda took the helm at the BOJ. Early signs support the bank’s view that last month’s increase in the national sales tax will not derail the recovery or drag Japan back into deflation.

But the BOJ has been notably wrong about exports. The weak yen was supposed to boost overseas shipments in time to take up the slack when consumption took a hit from the April 1 tax increase to 8 percent from 5 percent.

“The BOJ’s main scenario is for exports to gradually pick up. But exports remain the biggest risk to the outlook,” said an official familiar with the BOJ’s thinking.

The central bank still forecasts export growth will accelerate and Kuroda’s assurances that prices are on track to hit his 2 percent inflation target have prompted investors to scale back expectations of further easing later this year.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza