The Bank of Japan is widely expected to keep its policy unchanged at its meeting this week, despite recent weaker economic data. Japan's economy grew 0.7 percent on-year in the fourth quarter of 2013, revised down from a preliminary reading of 1 percent, data released Monday showed, coming in below economists' expectations, according to Reuters.
Investors have been watching the data closely for signs of the relative success of Abenomics, or the around one-year-old plan from Japanese Prime Minister Shinzo Abe aimed at kick-starting Japan's long-moribund economy out of its decades-long struggle against the pressures of deflation.
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Despite the scheduled increase in the consumption tax to 8 percent from 5 percent in April, which is expected to dent consumer spending, the BOJ is unlikely to ease further until the third quarter of the year, said Izumi Devalier, a Japan economist at HSBC.
"(BOJ Governor) Kuroda still sounds very confident that inflation is moving in line with the BOJ's expectations," she said. "The BOJ feels it's very important to lift inflation expectations. And that if they ease prematurely it sends the message that they're losing confidence and I don't think they want to project that image yet," she said.
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But she added, the corporate sector is key to continuing the economic recovery and there are real reasons for doubts.
"This cycle currently has stopped with the corporates. It's not going much further," she said.