Bank of Japan rejects easing as it projects healthy GDP growth

Tim Wallace
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JAPAN’S economy is growing relatively strongly and does not need any help from a looser monetary policy, its central bank announced yesterday, marking a stark contrast with the downbeat tone of other major central banks.

In the week after the European Central Bank and Bank of England loosened policy to combat the sovereign debt crisis and a day after the Fed hinted at future quantitative easing, the Bank of Japan pointed to a pick up in growth in the economy.

“Business sentiment has been improving moderately, particularly in domestic demand-oriented sectors,” said the Bank, and “exports have shown signs of a pick-up.”

Domestic demand is largely driven by reconstruction work, while public investment is also rising, it added.

The Bank is also hopeful that deflation will be overcome, and predicts inflation on the consumer price index (CPI) to come in at zero this year and 0.7 per cent in the next fiscal year.

But not all economists are convinced.

“An end to deflation next year seems optimistic to us,” said Lombard Street Research. “The economy has a significant degree of spare capacity: above trend GDP growth this year will not be sufficient to eliminate this.”