Bank Of Japan Keeps Monetary Policy Unchanged Despite Run Of Weak Economic Data

The Bank of Japan kept its monetary policy unchanged Thursday even as the country’s exports -- hit by a weakening demand in China -- fell for the first time in over a year. The soft trade figures, coupled with Monday’s economic data that showed that the world’s third-largest economy is now in recession, are likely to build pressure on the central bank to further loosen its purse strings.

As widely expected, the central bank maintained its pledge to increase the purchase of Japanese government bonds at an annual pace of about 80 trillion yen ($650 billion).

In a statement outlining its decision, the BoJ said that despite exports and production being hit by a slowdown in emerging economies, “Japan's economy has continued to recover moderately” -- reiterating its earlier assessment.

“Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the momentum of economic activity and prices in Europe, and the pace of recovery in the U.S. economy,” the BoJ said, in the statement.

Data released earlier this week showed that Japan's GDP shrank for the second consecutive quarter in the three-month period ending Sept. 30, marking the fourth time the country has entered recession since the global financial crisis. The data also cast doubts over the efficacy of the ambitious stimulus package championed by Prime Minister Shinzo Abe and the government’s 2 percent inflation target.

“The BoJ places a lot of importance on inflation expectations, so they would have to consider more easing if inflation expectations weaken further,” Norio Miyagawa, a senior economist at Mizuho Securities, told Reuters. “If it's just oil prices remaining weak, the BoJ can afford to wait. But if oil price moves start to bring down inflation expectations, the BoJ would have to move.”

Earlier Thursday, data released by the Japanese ministry of finance showed that exports slid 2.1 percent from a year earlier to 6.544 trillion yen ($52.9 billion) in October -- the first decline since August 2014. Japanese manufacturers were mainly hit by slowdown in China, and, as the data showed, exports to the world’s second-largest economy fell 3.6 percent year-on-year in October, marking the third straight month of decline.

However, over the previous month, overall exports rose 0.6 percent in October -- the first increase in four months.

“The data probably came as neutral to the BoJ's outlook,” Hidenobu Tokuda, a senior economist at Mizuho Research Institute, told Reuters. “Exports show signs of bottoming out, but given declining export volume, they are unlikely to become a driver of growth in the current quarter as effects of China’s slowdown and falling commodity prices are spreading to other countries.”