The Bank of Japan (BoJ) is indicating that it would step back from additional stimulus in their monetary policy minutes. The central bank stated that the Japanese economy was resilient during April’s three percent sales tax hike and still remains optimistic on the economy going forward.
The current quantitative easing program will remain stable, with the monetary base expanding at ¥60-70 trillion per year. The BoJ will continue to chase the eluding two percent inflation target. Consumer prices have risen at the fastest pace in nearly three decades, but inflation has remained 1.3 percent over the last few months.
In the first quarter, Japan grew 5.9 percent on an annual basis, but economists expect the gross domestic product figure to come closer to 3.4 percent. The April tax hike is primarily the culprit as it is expected to deter consumer spending. In comparison, department store sales fell 12 percent in April. That is two percent less than the decline seen during the last sales tax increase in 1997.
The rise in the yen is expected to continue, and many economists believe that the BoJ will not reach their inflation target by the March 2017 target. A fresh does of stimulus is expected to become implemented by the end of the year. “The BOJ won’t be nervous unless the yen goes above 100 yen,” said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.
The yen is marginally higher after the statement release. USDJPY is currently 101.17 and will likely target the 200 EMA on the daily chart, or 100.75.