The Bank of Japan (BOJ) on Wednesday kept its massive stimulus program intact, in the wake of data that showed the economy in recession and ahead of snap elections expected in December.
The move was widely expected after the central bank surprised markets last month by expanding its quantitative easing program, swelling Japan's monetary base by around 80 trillion yen ($682 billion) each year, up from 60-70 trillion yen currently.
"Japan's economy continues to recover moderately as a trend, although some weaknesses remain mainly in output," the BOJ said in a statement after its policy meeting. It revised up its view on exports to say they were "flat," compared with last month's assessment that they were weakening.
Board member Takahide Kiuchi, a skeptic of the current quantitative easing program, was the only dissenter in the 8-1 vote. This shows more agreement than on October 31, when the vote to increase the stimulus was deeply divided in a rare 4-5 split.
On Tuesday, Prime Minister Shinzo Abe announced a widely-telegraphed decision to dissolve parliament and hold snap elections, likely in mid-December. He also put off raising consumption tax for a second time – to 10 percent – by 18 months. The move was initially scheduled for October 2015.
Japan's economy has been clobbered by April's hike in nationwide-wide sales tax to 8 percent from 5 percent; data released Monday showed gross domestic product in the third quarter contracted a shocking 1.6 percent annualized rate after shrinking an equally-dismal 7.3 percent in the second quarter.
In a media briefing following the BOJ decision, central governor Haruhiko Kuroda avoided criticizing Abe's decision to delay the tax increase, but urged for continuation for fiscal reforms.
"Whether to raise the sales tax is something the government and parliament decides, taking into account economic and other conditions," Kuroda said. "In general terms, it's important for Japan as a nation to maintain market trust in its finances."
"The government has laid out a medium-term fiscal consolidation plan and has set a clear target ... We hope the government steadily implements measures, based on this plan, to create a sustainable fiscal structure," he added.