Tokyo, October 30

Japan’s central bank kept its monetary policy unchanged today, but hinted it could expand its already expansive stimulus in the future to counter slowing exports and other threats to growth.

The decision came despite fresh evidence that the Bank of Japan (BoJ) is making little headway in its unprecedented effort to spur inflation in the world’s third largest economy.

Data for September showed core inflation rate, which excludes volatile food prices, was minus 0.1 per cent while household incomes and spending also fell. In a statement, the BoJ cited slowing growth in China and other emerging markets as a factor behind weakening exports and industrial production.

Hinting it may consider further action later, the BoJ said it would study risks to economic activity and prices ‘and make adjustments as appropriate’.

Central bank asset purchases are injecting tens of billions of dollars of cash into the economy each month. But with inflation still near zero, many economists had expected a ‘surprise’ move by BoJ Governor Haruhiko Kuroda.

The US Federal Reserve is moving toward raising interest rates and winding down central bank asset purchases, but Japan remains firmly in loosening mode along with the European Central Bank. Prime Minister Shinzo Abe’s economic policies are aimed at getting consumers and businesses to spend more, both by keeping interest rates at record low levels and by fostering expectations that inflation will erode future purchasing power.

But the economy contracted at a 1.2 per cent annual rate in the April to June quarter and many economists expect it to have again lost ground in July to September. Earlier today, the BoJ issued a short statement saying it was keeping its policies as is. As usual, Economist Takahide Kiuchi was the policy board’s lone dissenter, advocating a sharp cutback in asset purchases.

Data released earlier this week showed stronger-than-expected manufacturing output in September. That may have alleviated pressure on the BoJ to take further action to spur growth.

But Kuroda, while repeatedly insisting the economy is in the midst of a ‘moderate recovery’, has contended all along that the BoJ has done everything it can to boost growth.