BOJ keeps massive monetary stimulus intact

A security guard stands outside the Bank of Japan headquarters in Tokyo, Japan.
Tomohiro Ohsumi | Bloomberg | Getty Images

The Bank of Japan on Friday kept its massive monetary stimulus program intact, as widely expected, and revised up its assessment of the economy, but analysts remain unconvinced the central bank is done with its easing campaign.

In an 8-1 vote, the central bank pledged to increase base money at an annual pace of 80 trillion yen ($660 billion) through purchases of government bonds and risky assets.

In a statement, the BOJ maintained that the world's third-largest economy has continued to recover moderately. Governor Haruhiko Kuroda will hold a news conference at 3:30pm local time to explain the policy decision.

"The (BOJ) economic assessment was more upbeat than at previous meetings. Policymakers no longer see a sluggish recovery in some areas of private consumption, but now judge consumer spending as 'resilient' without qualification," Marcel Thieliant, Japan economist with Capital Economics, wrote in a note.

The Nikkei 225 held steady on the news, down 0.15 percent, while the yen rose slightly against the U.S. dollar, touching 120.84 from 120.93 prior to the data release.

The decision followed the latest growth data from Japan on Wednesday that showed the economy expanding an annualized 2.4 percent in the first quarter, better than expected and following the 1.5 percent annualized growth in the fourth quarter.

"It came as no surprise that the Bank of Japan left policy settings unchanged today, and the apparent strength in Q1 GDP suggests that additional easing in July is off the table," said Thieliant.

Still, market watchers say further easing is inevitable down the line with the consumer inflation rate far from the BOJ's target of 2 percent. Nationwide consumer inflation rate stood at 0.2 percent in March.

Since embarking on the quantitative easing program in April 2013, the BOJ expanded the program just once, in October last year.

"We continue to think that the BoJ will be forced to opt for additional easing into October as the board's inflation rate forecast is turning out too optimistic. Triggers for additional easing moves will be downshifts in expected inflation rates and material softening of ex-energy CPI," Hiromichi Shirakawa, managing director of Japan economics at Credit Suisse, wrote in a note.

Capital Economics' Thieliant adds that wage growth, while showing some strength, remains "too slow to create even modest price pressure." He expects the BOJ to step up the pace of asset purchases by October.

Others point to Kuroda's unchanging positive-view on the economy, which suggests the central bank will hold steady on monetary policy for a while.

"Mr Kuroda is satisfied with the current state of Japanese economy and at this moment he won't consider further action. The economy is going as he anticipated and I think he's happy about that," Eisuke Sakakibara, professor at Aoyama Gakuin University and a former vice finance minister, told CNBC.

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