BOJ to stand pat on policy, may sound more upbeat on economy post-GDP

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is set to maintain its massive monetary stimulus on Friday and may offer a slightly more upbeat view of the economy, unfazed by first-quarter GDP data that offered mixed signs on the strength of the recovery.

Data on Wednesday showed the world’s third-largest economy expanded at an annualized 2.4 percent in the first three months of this year, the fastest pace in a year, a sign Japan was steadily emerging from last year’s recession.

But growth was inflated by inventories, and exports, private consumption and capital expenditure grew at only a feeble pace, failing to convince analysts the recovery was gaining momentum.

Still, the rises will likely allow BOJ policymakers to cling to their view that the economy is recovering moderately thanks to a steady pick-up in consumption and exports, analysts say.

“I expect the economy to move from recovery to an expansionary phase,” Eiji Maeda, the BOJ’s chief economist, said on Monday, underscoring the bank’s optimism that economic growth will accelerate this year.

The BOJ may revise up its view on consumption and exports from last month, when it said spending was “holding up albeit with some weaknesses” and exports were “picking up,” say sources familiar with its thinking.

At his post-meeting news conference, Governor Haruhiko Kuroda will likely repeat that Japan will see inflation hit his 2 percent inflation target around the first half of next fiscal year, which begins in April 2016.

The BOJ may also offer a slightly brighter view on the economy than last month, when it said it is “recovering moderately as a trend.”

But that is a close call as some in the board are worried that slowing overseas growth and feeble wage growth will weigh on activity.

Having earned some breathing space last month by pushing back the timing for hitting the price target, the BOJ is seen sticking to its pledge of increasing base money at an annual pace of 80 trillion yen ($661 billion) via aggressive asset buying.

Markets are focusing on how Kuroda will assess the gross domestic product (GDP) data and defend his stimulus program, which has drawn fire for failing to lift inflation expectations.

A small omission in a BOJ report on its radical stimulus program has signaled that some central bankers feel it is not working as expected.

Kuroda has voiced confidence the stimulus was succeeding in keeping the economy on track to hit the price target. But markets are unconvinced, with a majority of analysts in a Reuters poll betting on further easing in October.

(Editing by Kim Coghill)

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