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Economy

BOJ stands pat but downgrades view of output and exports

Governor Kuroda expects deceleration to be short-lived, however

Japan's economy is losing steam despite ultraloose monetary policy under Bank of Japan Gov. Haruhiko Kuroda over the past six years. (Photo by Nozomu Ogawa)

TOKYO -- The Bank of Japan kept its monetary policy unchanged on Friday, as its counterparts in the U.S. and Europe signal shifts in their policies amid signs of spreading economic deceleration around the world.

"The Chinese economy is decelerating," Gov. Haruhiko Kuroda said in a news conference. But "stimulus steps are already being taken by the government. Their effects will show up in due course. Many believe that will be in the latter half of this year," he added. 

"There are risks to the global economy. They need to be monitored carefully. But continued gradual growth remains our main scenario."

After a two-day meeting, the BOJ board voted 7-2 to maintain short-term interest rates at minus 0.1% and the target for 10-year Japanese government bond yields at around zero. The board also decided to continue buying JGBs and increasing central bank holdings by around 80 trillion yen ($716 billion) a year.

But in a recognition of headwinds facing the Japanese economy, the BOJ downgraded its view of exports and output, saying they have been showing weakness recently. Previously, the central bank described export and output conditions as being "on an expanding trend."

The BOJ said overseas economies are growing at a moderate pace but added that slowdowns are being observed. Previously, the bank had said that overseas economies were growing firmly.

The central bank under Gov. Haruhiko Kuroda has kept its monetary policy super loose in the last six years in an effort to stimulate the economy and boost inflation to 2%. But since late last year, the economy has started to lose growth momentum as the Chinese economy slowed amid trade tensions with the U.S.

Japan's economy expanded at an annualized rate of 1.9% in the October-December period, reversing a decline of 2.4% in the prior quarter. But January recorded sharply lower industrial output and exports, raising fears of a more protracted export-led slowdown.

Last year, China's economy grew at the slowest pace in almost three decades. This month, China lowered its growth forecast for the year to between 6% and 6.5% and laid out plans to stimulate the economy, including tax cuts, fiscal spending and more bank lending.

The U.S. Federal Reserve has been signaling a pause in monetary tightening since January. The European Central Bank followed suit, unveiling new monetary stimulus this month.

Kuroda said that the BOJ doesn't have to follow the Fed and the ECB, noting that Japan's domestic demand, such as household spending and business investment, continues to hold up. 

"With the economy's supply-demand gap remaining positive, momentum is still there toward achieving 2% inflation, even if it is likely to take longer than expected," he said. 

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