Bank of Japan gives first upbeat assessment of economy in two years

The Bank of Japan has said that economic recovery has begun, and made no major changes to its monetary policy in its first upbeat assessment in two years.

“Japan’s economy is starting to recover moderately,” the bank said in a statement, with exports picking up in light of increasing demand overseas, as are businesses fixed investments and public investment, while private consumption has “remained resilient”.

The bank continues to forecast consumer inflation will accelerate to nearly two per cent in the year ending March 2016 – a key target for prime minister Shinzo Abe to reflate the economy. The monetary base will continue to grow at an annual pace of 60tn to 70tn yen and the rate of asset purchasing will also be held steady (release).

But it adds that the European debt problem, developments in emerging and commodity-exporting economies and the pace of recovery in the US are major risks to Japan’s economic recovery.

The Bank will continue with quantitative and qualitative monetary easing, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.

Speaking at a press conference after the announcement, Bank of Japan governor Haruhiko Kuroda said that some price forecasts had been cut on due to recent falls in commodity prices, but most members agreed that consumer inflation would near two per cent in the latter half of the three year projections ending March 2013.

He added that the bank would be keeping a close eye on developments in China, including changes to its shadow banking sector.

Despite nervousness in the markets about tapering of quantitative easing by the US Federal Reserve, Kuroda thinks understanding of its policies is beginning to spread, and that the US economy is on the road to recovery.

Finally, while it is possible Japanese rates could rise from worries about fiscal discipline, he said government policies show Japan is taking this seriously.

The dollar rose against the yen from 99.10 to 99.23.