July 15, 2014 2:02 pm JST

BOJ keeps scenario for Japan economy despite tax hike

TOKYO (Kyodo) -- The Bank of Japan said Tuesday the country's economy remains on a recovery track under the central bank's aggressive monetary easing, leaving almost unchanged its projections for growth and inflation despite a negative impact from the April sales tax hike.

     The widely expected move added to the market view that the BOJ will not immediately move to further ease monetary conditions as it believes the consumption tax hike has caused only limited headwinds for the efforts by the government and bank to beat chronic deflation in the country and keep the recovery from derailing.

     At its two-day meeting that ended the same day, the BOJ's Policy Board reviewed its forecasts for Japan's growth and inflation.

     The bank said the median forecast of the board members for inflation-adjusted gross domestic product was a 1.0 percent increase for the current fiscal year through March, downgraded from 1.1 percent forecast in April, due apparently to the impact of the tax hike which had been feared to slow household and business spending.

     The central bank also expected real GDP to expand 1.5 percent in fiscal 2015 and 1.3 percent in fiscal 2016, keeping the earlier forecasts unchanged.

     The BOJ retained all of its inflation forecasts made three months earlier.

     The nation's core consumer price index, excluding volatile fresh food prices, is expected to rise 1.3 percent in fiscal 2014, 1.9 percent in fiscal 2015 and 2.1 percent in fiscal 2016 after excluding the direct effects of the tax hike.

     The nine-member board headed by Governor Haruhiko Kuroda voted unanimously to maintain the bank's ultraloose monetary policy aimed at achieving a 2 percent inflation goal in or around fiscal 2015 by purchasing massive amounts of Japanese government bonds and other financial assets from banks and doubling the money base.

     The "quantitative and qualitative easing" was introduced in April 2013 with the BOJ cooperating with the government of Prime Minister Shinzo Abe in trying to exit nearly two decades of deflation with constant price falls hurting the business environment.

     "Japan's economy has continued to recover moderately as a trend, although a subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed," the BOJ said in a statement released after the meeting, maintaining its basic assessment of the economy.

     The latest growth and inflation forecasts stimulated the view in financial markets that the BOJ will not immediately take action to additionally ease its policy.

     The bank has said the year-on-year rate of change in the CPI, which has been lifted mainly by rising energy and other import prices due to a weaker yen, will start shrinking through this summer before following an upward trend again from as early as October amid a potential recovery in domestic demand.

     With the BOJ making such a forecast public, some analysts said, a possible brief slowdown in inflation will not necessarily press the bank into further action to achieve the 2 percent goal.