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The central bank will boost the monetary base at an annual pace of 80 trillion yen ($670 billion), it said in a statement, as forecast by all 33 economists surveyed by Bloomberg News.
Exports have shown signs of picking up, while production has started to bottom out, the BOJ said, striking a more upbeat tone in its view of the world’s third-largest economy. Oil has lost more than a quarter of its value since the central bank boosted easing on Oct. 31 to end a “deflationary mindset.”
“The BOJ wants the focus to be on the improvement in the economy,” said Mari Iwashita, chief market economist at SMBC Friend Securities Co. “Chances are pretty low that it will ease because of the recent tumble in oil prices. They want to make it clear their policy is
forward looking and that a virtuous economic cycle is intact.”
The economy is expected to continue a moderate recovery, as the effects of an April sales-tax increase dissipate, the BOJ said in a statement. Inflation expectations appear to be rising from a longer-term perspective, the bank said. Last month, it said exports had been “more or less flat” and cited “some weakness” in production.
The yen has declined 8.4 percent against the dollar since the day before the October easing, and was down 0.4 percent at 119.27 at 5:03 p.m. in Tokyo after touching a seven-year low of 121.85 on Dec. 8. The Topix index of shares rose 2.4 percent.
Slowing Inflation
The drop in oil prices has crimped inflation, complicating Kuroda’s task of generating 2 percent price gains after he led a divided board on Oct. 31 to increase stimulus.Given the declines in oil, it may be hard for inflation to pick up in the first half of the fiscal year starting in April, Kuroda said at a press conference.
Still, cheaper oil will spur the economy “quite soon,” with the boost to growth taking a while longer to feed into faster inflation, he said. Over the long run, oil’s decline is positive for consumer price gains, he said, saying the bank is sticking to its view the 2 percent target is likely to be reached around next fiscal year.
“If there are any risks that change the outlook, we will take action without hesitation to achieve the price target,” Kuroda said. “There is no change in this stance.”
Breakeven Rate
The central bank rejects the idea that more stimulus is needed to prevent cheaper oil from damping inflation, people familiar with the discussions said.Consumer prices will likely be around the current level for the time being, the bank said today. Prices excluding fresh food and the effects of a higher sales tax -- the BOJ’s key measure - - rose 0.9 percent in October from a year earlier, a slowing from a 1 percent increase in September.
The breakeven rate, a gauge of bond investors’ expectations of future inflation over the next 10 years, has declined about 26 percent so far this month, and signals a 0.83 percent annual cost of living increase.
Excluding the sales tax, corporate goods prices declined 0.2 percent in November, the first drop since March 2013, pressured by oil’s fall, according to the BOJ.
Plummeting Oil
“Falling oil prices are a headache” for the BOJ, Yasuhide Yajima, an economist at NLI Research Institute, said before the decision.Japan imports almost all of its oil, and is more dependent on fossil fuels to drive its economy with the nation’s nuclear power industry shuttered after a disaster in 2011. Cheaper oil is good for the economy and inflation in the longer term, even as it weighs on consumer prices in the short term, Kuroda said last month.
The price of Dubai crude oil -- a benchmark for Middle East supply to Asia -- was at $58.80 a barrel yesterday, losing 31 percent since Oct. 30, the day before the BOJ boosted the pace of its asset purchases.
Dubai oil at $60 per barrel would give the same boost to growth as an additional 10 trillion yen worth of fiscal stimulus, exceeding a drag from April’s sales tax hike, Junichi Makino, an economist at SMBC Nikko Securities Inc., wrote in a note this week.
OPEC Control
OPEC has lost control of the oil market, casting a shadow over the world economy, said Joji Okada, chief financial officer at trading house Mitsui & Co., which has $107 billion in assets spanning 66 countries.It could take oil company bankruptcies, production stoppages at higher-cost members of the Organization of Petroleum Exporting Countries, or a widespread shutdown of shale output in the U.S. to stabilize prices, he said.
“I’m really concerned for the global economy,” Okada said in an interview at the company’s Tokyo headquarters this week.
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