• Aug. 17, 2017, 10:16 am

BOJ to maintain stimulus this week, debate consumption strength

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is set to maintain its massive stimulus program on Friday and its optimism that a consumption-driven recovery will eventually take hold, helping achieve its ambitious inflation target around the middle of 2016.

At a post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely to reiterate that he sees no imminent need to ease policy with improvements in the economy underpinning a broad uptrend in prices.

But he will also remind markets of the BOJ’s readiness to expand stimulus again if private consumption falters and discourages companies from raising prices, analysts say.

BOJ Deputy Governor Kikuo Iwata told parliament on Tuesday that inflation will likely accelerate late this year as consumers overcome the pain from last year’s sales tax hike and start to feel the benefit from lower fuel costs.

“The underlying trend of inflation is improving steadily,” Iwata said.

At a two-day rate review ending on Friday, the BOJ is widely expected to maintain its pledge of increasing base money at an annual pace of 80 trillion yen ($667 billion) through purchases of government bonds and risky assets.

Among indicators the board will scrutinize is Wednesday’s first-quarter gross domestic product (GDP) data, which is likely to show the world’s third-largest economy made a modest rebound from last year’s recession.

BOJ officials say the strength of private consumption holds the key to hitting their 2 percent inflation target.

Consumers have yet to boost spending despite rising jobs and wages, underscoring the challenges of wiping out the “deflationary mindset” that has beset Japan for two decades.

In a sign of hope, service-sector sentiment picked up and household spending rose for the second straight month in March, as department stores and supermarkets reported rising sales.

If consumption proves strong in the GDP data, the BOJ may offer a slightly brighter view of household spending than last month, say sources familiar with its thinking.

In April, it said consumption is “firm as a whole, although softness is seen in some areas.”

The BOJ pushed back the timing for hitting its inflation target last month as price growth ground to a halt amid slumping fuel costs.

It now expects Japan to hit 2 percent inflation around the April-September fiscal first half of next year, though many analysts say that projection as still too ambitious and predict it will have to announce additional easing later this year.

($1 = 119.9500 yen)

(Editing by Kim Coghill)

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