TEXT-BOJ says sees slightly milder deflation

(For more stories on Japan’s economy click [ID:nECONJP])

TOKYO, Jan 26 (BestGrowthStock) – The Bank of Japan on Tuesday
predicted a slightly slower annual pace of price falls for the
year beginning in April due largely to the impact of rising crude
oil costs, and reiterated that it would keep monetary policy
conditions very easy.

The BOJ still said it expects three years of deflation
however, and it largely stuck to its economic growth forecasts
made three months ago.

Following is the BOJ statement issued after the meeting.

1. At the Monetary Policy Meeting held today, the Policy
Board of the Bank of Japan decided, by a unanimous vote, to set
the following guideline for money market operations for the
intermeeting period:

The Bank of Japan will encourage the uncollateralized
overnight call rate to remain at around 0.1 percent.

2. Japan’s economy is picking up mainly due to various policy
measures taken at home and abroad, although there is not yet
sufficient momentum to support a self-sustaining recovery in
domestic private demand.

Exports and production have been increasing against a
backdrop of progress in inventory adjustments both at home and
abroad as well as an improvement in overseas economies,
especially, fast growth in emerging economies.

The decline in business fixed investment has been coming to a
halt. Private consumption, notably durable goods consumption, is
picking up mainly due to policy measures, despite the continued
severe employment and income situation.

Public investment has started to level off. Meanwhile, the
financial environment, with some lingering severity, has
continued to show signs of improvement.

The CPI (excluding fresh food) has been declining on a
year-on-year basis due to the substantial slack in the economy as
a whole, but the rate of decline has been moderating mainly
because the effects of fluctuations in the prices of petroleum
products have been dissipating.

3. The Bank’s baseline scenario projects that the pace of
improvement of the economy is likely to remain moderate until
around the middle of fiscal 2010.

Thereafter, as improvements in the corporate sector
originating from exports are expected to spill over to the
household sector, the growth rate of the economy is likely
gradually to rise.

With regard to prices, assuming that medium- to long-term
inflation expectations remain stable, the year-on-year rate of
decline in the CPI (excluding fresh food) is likely to moderate
as the aggregate supply and demand balance improves gradually.

4. Compared with the projections presented in the October
2009 Outlook for Economic Activity and Prices, growth prospects
remain broadly unchanged.

With regard to prices, the year-on-year rates of change in
the domestic corporate goods price index and the CPI (excluding
fresh food) will likely be somewhat higher than the October
projections due mainly to the rise in crude oil prices.

5. With regard to economic activity, while there are some
upside risks, such as faster growth in emerging and
commodity-exporting economies, there remain downside risks,
although somewhat diminished; down side risk factors include the
possible consequences of balance-sheet adjustments in the United
States and Europe as well as potential changes in firms’ medium-
to long-term growth expectations.

Attention should continue to be paid to recent various
international financial developments and their effects.

With regard to prices, there is a possibility that inflation
will rise more than expected due to a rise in commodity prices
brought about by higher growth rates in emerging and
commodity-exporting economies.

On the other hand, there is also a risk that the rate of
inflation might decline due, for example, to a decline in medium-
to long-term inflation expectations.

6. The Bank recognizes that it is a critical challenge for
Japan’s economy to overcome deflation and return to a sustainable
growth path with price stability.

To this end, the Bank will continue to consistently make
contributions as central bank. In the conduct of monetary policy,
the Bank will aim to maintain the extremely accommodative
financial environment.

Voting for the action: Mr. M. Shirakawa, Mr. H. Yamaguchi,
Mr. K. G. Nishimura, Ms. M. Suda, Mr. T. Noda, Mr. S. Nakamura,
and Mr. H. Kamezaki. Voting against the action: None.

Stock Report

(Compiled by Fumika Inoue)

TEXT-BOJ says sees slightly milder deflation