The Bank of Japan (BoJ) today upgraded its assessment of the world’s number three economy, saying a recovery was firmly under way as Tokyo works to reverse years of lumbering growth.
The announcement comes as the government considers whether to go ahead with a planned sales tax hike that many fear could derail any recovery.
Central bank policymakers said “Japan’s economy is recovering moderately” and held off expanding a massive stimulus programme unveiled in April, which has been credited with kickstarting growth and pushing down the value of the yen, in turn boosting exporters.
However, the bank may jack up its easing plan if any tax hikes put the brakes on growth, analysts said.
The bank’s bond-buying scheme is a key part of Prime Minister Shinzo Abe’s plan to reinvigorate the long-suffering economy, dubbed “Abenomics”, which also includes huge government spending.
The BoJ’s comments were a step up from July, when it said the economy was “starting to recover moderately”.
The bank added that overseas economies “as a whole are gradually heading toward a pick-up”, providing a fillip to exporters. The brighter global outlook as well as an ongoing weakening of the yen has helped boost Japan’s shipments to key markets.
Key indicators including business investment and consumer demand were looking brighter, the BoJ added.
Abe’s hand-picked bank management team, led by governor Haruhiko Kuroda, was installed six months ago with a mission to join forces with government to reverse Japan’s fortunes.
The bank unleashed its massive bond-buying scheme in April, similar to the Fed’s quantitative easing programme, and set a target of hitting two-percent inflation within two years.
The move was aimed at reversing years of deflation that has hurt the economy by prompting consumers to put off purchases in the hope prices will fall further, which in turn hurt producers.
However, while the bank did not unveil any fresh measures today it hinted that further moves could be in the offing depending on inflation.
We will “examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate”, it said.
Yuri Yoshida, an analyst with Standard and Poor’s, described the BoJ statement as a “reasonable and carefully chosen message”.
“Any remarks by the BoJ are quite significant ahead of a decision on the planned consumption tax hike. So, the upward revision of its assessment has a meaning, though it’s subtle.”
Tokyo is weighing a plan to double the nation’s sales tax to 10 per cent by 2015.