BOJ maintains policy, demand to take hit from tax rise

    The Bank of Japan (BOJ) kept its monetary policy steady, as expected, and said Japan's economy was expected to continue its moderate recovery but this would be "affected by the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike."
    The BOJ, which one year ago launched an aggressive easing program to rid Japan of some 15 years of deflation, again said inflation expectations appeared to be rising and the annual inflation rate, excluding the impact of the April 1 rise in the sales tax to 8 percent from 5 percent, was likely to be around 1.25 percent for some time.
    Financial markets are speculating that the BOJ may launch another round of quantitative easing in coming months if the impact of the higher sales tax has a large negative impact on the economy.
    Japan's Gross Domestic Product expanded by 0.2 percent in the fourth quarter of last year for annual growth of 2.6 percent, the third quarter of accelerating growth.
    The BOJ has acknowledged that consumers have been purchasing goods in the months prior to the rise in the sales tax but expects the economic recovery to continue despite a temporary drop in demand in the months ahead.

    Japan's inflation rate rose to 1.5 percent in February from 1.4 percent in January and the BOJ reiterated that it would continue with its quantitative and qualitative easing for as long as it is necessary to achieve its aim of boosting inflation to 2.0 percent.
    In April 2013 the BOJ changed its monetary policy framework and started to focus on boosting the country's monetary base - cash in circulation and banks'  reserves - by an annual 60-70- trillion yen to 270 trillion by the end of this year from 138 trillion at the end of 2012.
    In a separate statement, the BOJ said the monetary base has risen to 220 trillion at the end of March from 205 trillion end-February.
    The BOJ is increasing the monetary base by purchasing Japanese government bonds, exchange-traded funds (ETFs), Japanese real estate investment trusts, commercial paper and corporate bonds.

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