Japan Maintains Rosy Assessment of Economy, Ongoing Stimulus

June 19, 2015Japanby EW News Desk Team

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Emerging from last year's recession, many in the financial industry were curious about the Japanese government's take on its own recovery programs. While these programs included a substantial stimulus package, they also included increases in sales tax and capital expenditures. However, based on a recent statement issued by the Bank of Japan, the nation apparently feels quite positive about its recovery progress; a fact signaled by its announcement of plans to maintain the Bank of Japan's massive stimulus program.

In the announcement (made Friday), the Bank of Japan not only described plans to continue the stimulus program, but asserted that growth would accelerate inflation to the BOJ's 2 percent target without any additional monetary easing. This assessment was based on observations of improving business sentiment and an increase in capital expenditures. The Bank of Japan also announced its decision (made by an 8-1 margin) to keep intact a pledge to increase base money at an annual rate of $650 billion per year via aggressive asset purchasing. The Bank of Japan noted in a statement reported by Reuters "Exports are picking up and capital expenditure is rising moderately as a trend as corporate revenues improve."

The BOJ also revised its assessment on housing investment, indicating that the industry "appeared to be picking up." Just last month the BOJ had said it believed that housing investment was bottoming out. This revision is not a retraction of the prior month's assessment, but rather an indication of positive upward movement in this segment of the economy.

Japan experienced a stronger than expected performance in the first quarter of 2015. Prior to this surprise showing, most economists pegged the economy's projected growth at somewhere under one percent for the year. However, after the reported first quarter showing, some have increased their expected growth rate to somewhere between three and four percent.

Some analysts believe the BOJ may become more hesitant to ease for fear of weakening the yen. The value of the yen sank significantly during the recession, which has actually served to help the still sagging export market, but has drawn criticism from the public and lawmakers. A strong yen has often been a source of national pride, and the Governor of the Bank of Japan is expected to address the nation after the next BOJ meeting to discuss the pros and cons of a weak yen.

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