BOJ to keep current pace of easing, shrug off recession as temporary
By Leika Kihara
TOKYO (Reuters) - The Bank of Japan is set to maintain the current pace of monetary easing on Thursday, holding on to slim hopes that a recovery for the sputtering economy is in sight despite soft capital expenditure and external headwinds.
Monday's data showing Japan's economy relapsed into recession in July-September likely came as little surprise to BOJ officials, who have said a mild contraction in growth alone won't mean more monetary easing is imminent.
With just two weeks having past since last month's meeting, the BOJ is widely expected to maintain its pledge to increase base money, or cash and deposits at the central bank, at an annual pace of 80 trillion yen (427 billion pounds).
At his post-meeting briefing, Governor Haruhiko Kuroda is expected to reiterate that tightening labour markets will push up wages and help the world's third-largest economy rebound from a temporary soft patch.
But he may struggle to sell the BOJ's rosy scenario as wages have failed to pick up and sluggish emerging market demand weighs on exports, analysts say. A slowdown in China, a big market for Japanese manufacturers, is adding to the drag on Japan's economy.
"Economic growth is weak and prices are falling. It's hard to argue a positive economic cycle remains in place," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.
At the previous rate review on Oct. 30, the BOJ held off on easing despite cutting its growth forecasts and delaying the timing for hitting its 2 percent price goal by six months.
Nearly half of analysts polled by Reuters last week predicted the BOJ will ease in January as continued declines in oil prices heighten the chance it will slash its price forecasts again.
But many central bank policymakers are reluctant to expand their already massive stimulus programme too soon, preferring to save their diminishing policy tools for as long as possible.
There are also concerns that additional stimulus could push the yen even lower, ramping up import costs and hurting consumption.
The government has signalled that the BOJ has done enough for now and instead are pressuring companies to spend their record profits more on wages and investment.
(Editing by Shri Navaratnam)
