BoJ keeps economic outlook despite Japan sinking into recession

[TOKYO] The Bank of Japan on Wednesday kept its view that Japan's economy was recovering, despite GDP data that showed the country had slipped into recession.

Wrapping up a two-day policy meeting, the central bank kept policy unchanged - after expanding its already huge stimulus package last month - as investors eye BoJ governor Haruhiko Kuroda's press briefing later in the day.

Markets want to see what Kuroda says about the government's decision to delay a sales tax rise next year, after a levy hike in April slammed the brakes on growth just as the deflation-plagued economy appeared to be turning corner.

The BoJ chief - who was hand picked by Prime Minister Shinzo Abe - has repeatedly called on Tokyo to follow through on tax rises, which are aimed at generating fresh revenue to pay down Japan's enormous national debt.

"With regard to the outlook, Japan's economy is expected to continue its moderate recovery trend, and the effects including those of the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike are expected to dissipate gradually," the BoJ said in a statement.

Despite keeping its view on the overall economy, the bank was more cautious on its inflation expectations.

"On the price-front, the year-on-year rate of increase in the consumer price index, excluding the direct effects of the consumption tax hike, is around 1.0 percent. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective," it said.

Last month, the BoJ surprised markets by ramping up its vast monetary easing programme, while it also slashed its economic growth forecast by half and trimmed consumer price expectations as a much-touted 2.0 per cent inflation target looked increasingly out of reach.

Mr Abe on Tuesday he was calling a snap election and delaying the second sales tax rise next year after the poor gross domestic product figures published Monday.

The world's number three economy shrank 0.4 per cent, or at an annualised rate of 1.6 per cent, underscoring how the April tax rise dented growth, dealing a huge blow to Mr Abe's bid to turn around years of tepid growth.

The reading was well below market expectations for a 0.5 per cent expansion, and come after Japan suffered a 1.9 per cent contraction in the April-June quarter - or 7.3 per cent at an annualised rate - as consumers and firms capped their spending.

AFP