Bank of Japan Optimistic About Economy After Holding Stimulus

Japan’s central bank pointed to signs of improvement in the world’s third-biggest economy after ending a policy meeting Wednesday with no change to its ultra-loose monetary stance.

The Bank of Japan noted that lower energy costs due to the plunge in crude prices will slow progress toward its inflation target of 2%.

But it cited a recovery in exports, improved industrial production and increased corporate investment as evidence that Japan’s economy is in a “moderate recovery trend.” Japan exited a recession in the last quarter of 2014.

The bank said a slump in housing investment is beginning to bottom out.

The BOJ is injecting tens of trillions of yen (hundreds of billions of dollars) into the economy each year to encourage business investment and push prices higher, in turn weakening Japan’s currency.

The weaker currency has fattened profits of exporters, helping push share prices to seven-year highs.

In its statement, the central bank did not mention the issue of falling or stagnant wages. They are a key concern frequently raised both by BOJ Gov. Haruhiko Kuroda and Prime Minister Shinzo Abe, who has made strong fiscal and monetary stimulus his main strategy for countering years of deflationary stagnation.

The central bank did note, regarding private consumption, that the “recovery in some areas has been sluggish.”

Kuroda and Abe, and many economists, say that long-term growth will hinge on improved purchasing power for Japanese consumers, whose spending is the main driver of growth. They have been lobbying the business community to raise wages at a faster pace to help support the recovery.

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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