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BOJ maintains record stimulus as inflation challenges Kuroda

The Bank of Japan maintained its record monetary stimulus as Governor Haruhiko Kuroda seeks to spur inflation that vanished last month.

[TOKYO] The Bank of Japan maintained its record monetary stimulus as Governor Haruhiko Kuroda seeks to spur inflation that vanished last month.

The central bank will continue to expand the monetary base at an annual pace of 80 trillion yen (S$867 billion), it said in a statement on Friday, as forecast by all 35 economists surveyed by Bloomberg.

Sluggish export growth is the latest risk to a recovery in the economy that analysts see slowing this quarter as companies work off elevated inventories. While Mr Kuroda said this week that inflation remains on track for the BOJ's target and he appeared to back off on earlier remarks that put the brakes on a weaker yen, economists are looking for more clarity at his press conference today.

"Inflation isn't rising and exports and consumer spending are picking more slowly than expected," Atsushi Takeda, an economist at Itochu Corp., said before the decision. "The BOJ will probably act preemptively once these risks pose a serious threat to achieving its price target." Inflation is likely to reach the BOJ's goal around the six months through September 2016, Mr Kuroda said this week, citing rising wages and a tight labor market. He also sought to clarify last week's remarks on the yen, which had sent the currency soaring and led economists from Barclays Plc to UBS Group AG to push back their forecasts for added easing.

The yen was little changed at 122.97 per dollar at 12:08 pm in Tokyo, after touching a 13-year earlier this month.

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Economic growth is forecast to slow to 1.4 per cent this quarter after a 3.9 per cent annualized expansion in the first three months of the year, when companies increased investment and piled up inventory. Inflation by the BOJ's main measure slowed to zero in April, two years after Mr Kuroda introduced an unprecedented asset-purchase plan to spur 2 per cent price gains.

Stronger-than-originally estimated capital spending in the first quarter is likely to be encouraging for Mr Kuroda, who has urged companies to put more of their cash and record profits into new facilities, according to Taro Saito, an economist at NLI Research Institute.

Shin-Etsu Chemical Co is among companies stepping up investment, with plans to spend 7 billion yen to build a new factory to increase production of advanced materials for manufacturing semiconductors, the Nikkei newspaper reported on Thursday.

While the tumble in oil prices has pushed down inflation, there are signs of inflationary pressures. Base pay rose 0.4 per cent in April, a second straight increase.

Prices of 321 goods rose in April, compared with 177 in March 2013 before Mr Kuroda began the record stimulus. Bull-Dog Sauce Co said this week it would increase prices for the first time in a quarter century to offset higher costs of raw materials caused by the weaker yen.

There's no need for the BOJ to take policy action as long as inflation is on an upward trend toward the central bank's target, board member Yutaka Harada said in an interview this month.


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