Bank of Japan Keeps Policy Steady After Abe’s Fiscal Package

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(Bloomberg) — The Bank of Japan left policy untouched Thursday as a government stimulus package, progress in U.S.-China trade talks and signs of a bottoming of the global slowdown brightened the economic outlook.
The central bank maintained its target for interest rates and asset purchases, according to its statement Thursday, in line with the view of all 45 economist surveyed by Bloomberg.

The BOJ has now reached the end of a precarious year without having to delve deeper into its depleted ammunition despite a wave of easing by central banks when the global deceleration looked set to deepen sharply.That wave has largely come to an end with the Federal Reserve pausing its interest rate cuts and new European Central Bank chief Christine Lagarde signaling the worst is likely over for the eurozone’s economy.
The phase one U.S.-China trade deal, a stabilizing of global manufacturing readings and a stronger mandate for the U.K. to leave the European Union have given time for Governor Haruhiko Kuroda to assess how Prime Minister Shinzo Abe’s $120 billion fiscal package will prop up growth in an economy contending with a sales tax increase, an export slump and destruction caused by a super typhoon.
While the BOJ no longer described overseas risks to the economy as increasing, it said they remained significant, signaling the board remains on guard.
BOJ officials see a sizable impact from Abe’s fiscal spending, which is expected to boost the economy by 0.35 percentage points, according to economists surveyed. The government Wednesday estimated Japan’s growth to be 1.4% in the year starting in April, increasing a likelihood that the BOJ will upgrade its projection of 0.7% in a quarterly report next month.
“The BOJ is off the hook,” said Shigeto Nagai, chief Japan economist at Oxford Economics in Tokyo ahead of the decision. “It’s a lot easier for the BOJ now. They will sit tight unless some unexpected shock hits the economy or market,” the former BOJ official said.
While keeping overall economic assessment, the BOJ downgraded its view of factory output after production dropped the most since a March 2011 tsunami and earthquake in October thanks to the typhoon and the tax hike. The bank raised its assessment of public investment after it helped prop up stronger-than-expected growth last quarter.
The BOJ maintained its forward guidance, saying it expected rates to remain low or lower as long as there was a chance of losing price momentum.