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Bank of Japan sticks to bullish view, stands pat on policy

The Bank of Japan on Friday stuck to its bullish view that it can achieve 2% inflation without extra action, brushing aside a slowing economy and near-zero price growth as temporary developments.

The central bank’s nine policy board members voted 8-1 to leave unchanged its main policy of buying assets at an annual pace of ¥80 trillion ($640 billion), as had been widely expected, following a two-day policy meeting. The BOJ last raised the purchase amount in October.

The bank also reiterated in its policy statement that the Japanese economy “continues to recover moderately.” The bank also raised its views on housing investment.

The decision to stand pat on policy and leave the overall assessment unchanged comes despite signs of trouble in the economy and skepticism over BOJ Gov. Haruhiko Kuroda’s prediction that inflation will reach 2% by the early autumn of 2016.

Even with the central bank’s monetary support, the economy likely contracted about 2% in annualized terms in the April-June quarter because of weaker consumption and exports, according to private economists. Meanwhile, Japan’s most closely watched inflation gauge, known as the core consumer-price index, is at 0.1% and could enter negative territory.

But central bank officials have yet to hint they are ready to open the monetary spigot some more, partly because the deadline for reaching 2% is still a way off. The BOJ has also stood by its projection that inflation will rebound, possibly starting this fall, as the effects of last year’s sharp drop in global oil prices disappear.

Officials close to Kuroda have been telling observers to look closely at prices excluding fresh food and energy costs, which rose 0.7% in May, rather than the headline figure, people familiar with the matter said.

MarketWatch