BOJ stands pat on monetary policy despite downturn after tax hike

Source: Xinhua| 2019-12-19 16:03:59|Editor: zh
Video PlayerClose

TOKYO, Dec. 19 (Xinhua) -- The Bank of Japan (BOJ) opted to leave its ultra easy monetary policy unchanged on Thursday, despite a consumption tax hike here in October weighing on the economy.

After a two-day policy setting meeting, the central bank's Policy Board decided to maintain the bank's short-term interest rate at minus 0.1 percent and guide long-term rates to around zero percent.

The BOJ at the conclusion of its meeting also decided to continue its massive asset purchasing program.

The BOJ standing pat on its monetary policy came on the heels of its own quarterly Tankan survey released last Friday, which showed that sentiment among large manufacturers had worsened for a fourth straight quarter to a near seven-year low.

The sentiment index stood at zero in the reporting period, dropping from a previous reading of plus 5 in September, the BOJ's survey showed, coming in well below median market expectations for a reading of plus 3.

The indexes reflect the percentage of companies reporting favorable business conditions minus the percentage of those reporting unfavorable conditions

The BOJ's Tankan survey is regarded as a leading indicator of Japan's economic health and serves as a guide for the central bank regarding the direction of its future monetary policy.

However, the BOJ kept its rates unchanged amid slumping sentiment at large firms and the fallout from the consumption tax hike here from 8 to 10 percent in October, which has weighed on consumer and business demand, as well as imports, according to recent figures from the Finance Ministry.

As for households with two or more people, the sales tax hike led to a drop of 5.1 percent in spending in October from a year earlier, marking the fastest pace of decline in more than three and a half years, the Ministry of Internal Affairs and Communications said.

The move by the BOJ not to unroll additional easing measures followed that of the U.S. Federal Reserve and the European Central Bank, which both kept their interest rates unchanged last week on easing concerns about the outlook for the global economy.

"Japan's economy has been on a moderate expanding trend although there are some indications of weakness in the country's exports, production and business sentiment following a series of natural disasters and due also to sluggish demand from overseas economies," the BOJ said in a statement.

The central bank "will take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost," it also added.

In October from a year earlier, Japan's core consumer prices rose 0.4 percent after the tax increase, although when excluding the impact of the tax hike, the index edged up only 0.2 percent in the recording period, marking the slowest rise since March 2017.

The current reading is still a long way short of the central bank's lofty goal of achieving 2.0-percent inflation.