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Economy

BOJ raises GDP forecast but keeps policy unchanged

Growth for 2020 is now projected at 0.9% instead of 0.7%

The Bank of Japan raised its economic growth forecast for the fiscal year starting in April.(Photo by Kei Higuchi) 

TOKYO -- The Bank of Japan said on Tuesday it would stick with its ultra-easy monetary policy and raised its growth estimate for the next fiscal year on hopes that a recently announced stimulus package would offset a tax increase at home and sluggish overseas expansion.

The central bank raised its growth forecast for the fiscal year ending March to 0.8% from 0.6% and for fiscal 2020 to 0.9% from 0.7% in response to a major stimulus package the government of Prime Minister Shinzo Abe announced last month.

The package needs approval from parliament, which convened Monday. The forecast is part of a quarterly economic outlook report released after a two-day policy meeting.

In a news conference after the meeting, BOJ Gov. Haruhiko Kuroda said Japan's economy still needs stimulus from the central bank.

"It's too early to consider reviewing the current monetary policy framework," he said, pointing out that core consumer inflation still hovers around 0.6% in Japan.

In the U.S., inflation has remained above 2% while wage growth has topped 3%.

"The Japanese economy has been growing at an appropriate pace. The jobs market is getting tighter but wage growth remains weak," Kuroda stressed.

The stimulus package is expected to immediately boost the economy because it includes sizable direct government spending programs, such as public works projects, Kuroda said.

The BOJ, however, lowered its inflation forecast to 1.0% from 1.1% for fiscal 2020 and to 0.6% from 0.7% for fiscal 2019, as core consumer prices stood at 0.5% in November, far below the bank's 2% target.

Kuroda added that the revisions to the inflation outlook aren't anything major, and mainly reflect damage from last fall's typhoons and softer energy prices. "[The revisions] don't represent a change in underlying price trends," he stressed.

The BOJ left its monetary stimulus intact, including guiding long-term interest rates to around zero and short-term interest rates to minus 0.1%, while increasing its holdings of Japanese government debt by 80 trillion yen ($730 billion) a year.

The bank also said it would keep expanding the monetary base in a stable manner until consumer inflation exceeds 2%.

At the U.S. Federal Reserve, officials are reviewing the central bank's inflation policy to avoid the tepid inflation plaguing Japan.

Japan faces a difficult task. It needs to keep up economic growth while dealing with soaring social security expenses amid a rapidly aging population. The situation is compounded by decelerating growth in China, to 6.1%, in 2019, the weakest pace in 29 years.

With the gas pedal pushed to the floor for monetary policy, the task of shoring up the economy has so far fallen on the central government, sparing the central bank from needing to wade deeper into negative interest rate territory, which would cut into banks' profits.

The U.S. central bank's pause in policy easing in December has also reduced pressure on BOJ to implement further easing.

Economists are divided over the outlook of Japanese monetary policy. Some said a turnaround in the technology sector, helped by China's aggressive spending on fifth-generation technology, and easing geopolitical tensions would create opportunity for BOJ to reduce monetary stimulus. Others predicted that a deceleration in U.S. growth this year would spur a new round of monetary easing.

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