Tokyo, November 19

Japan’s central bank today held fire on expanding its monetary easing programme, even as the world’s third-largest economy slipped into its second recession in two years and monthly exports fell.

Prime Minister Shinzo Abe has been trying since late 2012 to revitalise Japan’s economy through his signature ‘Abenomics’ policies, with aggressive monetary easing by the Bank of Japan (BoJ) at its foundation.

Some analysts anticipate the BoJ will be forced to expand its massive 80 trillion yen annual asset-buying scheme, launched more than two years ago to kickstart growth and end deflation — the chronic decline in prices that has sapped growth for years.

But BoJ opted to do nothing at the end of its two-day policy meeting, as it did last month — when expectations were even higher it would take action but before news on Monday that growth in gross domestic product (GDP) contracted for a second straight quarter.

“While the BoJ literally ignored renewed fall in (third quarter) GDP in today’s policy statement, we think that a likely moderation in underlying inflation will eventually force policymakers to introduce more stimulus,” Marcel Thieliant, Japan economist at Capital Economics said.

Asked about his views on the consecutive declines in GDP growth — the technical definition of a recession — BoJ Governor Haruhiko Kuroda told a news conference that the economy is better than the figures suggest.

Consumer spending is ‘resilient’ and exports broadly positive, meaning that ‘final demand as a whole is rising’, he said. “This is in line with evaluation that Japan’s economy is on a recovery path.”

And in data released earlier today, the finance ministry announced that exports declined in October for the first time in more than a year, as economic growth in giant neighbour China slows.

Overseas shipments by value declined 2.1 per cent, the first fall since August of last year, while the value of exports by Japanese companies to China shrank 3.6 per cent in October, the ministry said, as growth in the world’s second-largest economy slows.

“Japan’s economy has continued to recover moderately, although exports and production have been affected by slowdown in emerging economies. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, although some indicators have recently shown relatively weak developments,” BoJ said today.

The BoJ last month was forced to cut its growth outlook and pushed back the timeline for a key inflation target as earlier, more optimistic predictions failed to come true. Kuroda said the timeline for the central bank’s two per cent inflation target ‘depends on crude oil prices’, reiterating that it now expects the achievement will come around late next year or early 2017.