BOJ keeps policy steady, nudges up economic growth forecasts

BANK OF JAPAN / BOJ - TOKYO. The Bank of Japan kept monetary policy steady and nudged up its economic growth forecasts on Tuesday, as the government's stimulus package and receding pessimism over the global outlook took some pressure off the central bank to top up stimulus.

The BOJ also signalled cautious optimism over the global economy, saying that risks surrounding the outlook have "subsided somewhat."

Markets will now scrutinise BOJ Governor Haruhiko Kuroda's post-meeting briefing for clues on how his views on the pros and cons of his stimulus could affect policy decisions this year.

As widely expected, the BOJ kept its short-term interest rate target at -0.1% and a pledge to guide 10-year government bond yields around 0%.

It also maintained a guidance that commits to keeping rates at current low levels, or even to cut them, until risks keeping it from achieving its 2% inflation goal subside.

In a quarterly review of its forecasts, the BOJ revised up its growth projection for the fiscal year beginning in April to 0.9% from an estimate of 0.7% growth made in October, helped by a boost from the government's fiscal stimulus package.

"Japan's economy is likely to continue expanding moderately as a trend" as the impact of slowing global growth on domestic demand will be limited, the BOJ said in the quarterly report.

The world's third-biggest economy ground to a near halt in July-September and is likely to have contracted in the final quarter of last year as the U.S.-China trade war knocked exports.

BOJ officials hope the government's $122 billion fiscal package and robust capital expenditure will offset the hit from soft global demand and supply chain disruptions from last year's typhoons that continue to weigh on factory output.

Analysts and policymakers are also watching to see the impact on global growth from last week's preliminary trade deal signed between China and the United States to defuse their bitter tariff war.

The International Monetary Fund on Monday trimmed its 2020 global growth forecasts on sharper-than-expected slowdowns in emerging markets, but said the U.S.-China deal was another sign that manufacturing activity may soon bottom out.

Pessimists in the BOJ, however, fret that weak global auto demand and the drag on consumption from October's sales tax hike to 10% from 8% may mean only a modest rebound in January-March growth.

As tame inflation forces the BOJ to keep policy ultra-loose, its nine-member board is divided between those who see room to ramp up stimulus and others concerned of the hit to financial institutions' profits from years of near-zero rates.