Bank of Japan holds fire on stimulus, says economy recovering

TOKYO (AFP) - The Bank of Japan on Thursday held off announcing any fresh measures to stimulate the economy, saying it was "recovering moderately" and that efforts to stoke inflation were taking hold.

The bank's decision, after a two-day meeting, to hold steady on monetary easing comes despite a sharp slowdown in growth in the July-September quarter that raised questions about the strength of the country's recovery.

The BoJ unveiled its vast asset-buying scheme in April as part of a broader plan by Prime Minister Shinzo Abe to reinvigorate the economy and eradicate deflation with a policy blitz dubbed Abenomics.

"Japan's economy has been recovering moderately," the bank said in a statement.

"The year-on-year rate of increase in the CPI (consumer price index) is likely to rise gradually." Reversing years of falling prices is a key goal of the BoJ's easing plan, which aims for 2 per cent inflation in two years.

Analysts, however, have been increasingly sceptical of that ambitious timeline.

The bank has been ratcheting up its economic growth outlook, with its most recent forecast predicting an average 2.7 per cent expansion in the year to next March, with inflation at 0.7 per cent.

Inflation is tipped at 1.9 per cent within about two years, the BoJ said last month.

Last week, official data showed economic growth halved year-on-year in the July-September quarter as exports weakened and consumer spending slowed.

The BoJ on Thursday also acknowledged possible headwinds from overseas but said it remained optimistic. "We are taking a half-step forward on our assessment of overseas economies," BoJ governor Haruhiko Kuroda told reporters.

The effects of the US government shutdown last month on the world's largest economy were limited, the BoJ chief said, adding that "the US ... pace of growth is expected to accelerate going forward".

However, in its statement earlier Thursday, the bank warned "the prospects for the European debt problem ... and the pace of recovery in the US economy" remained concerns. The central bank added it was still open to further easing measures for Japan's economy if necessary.

We "will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate", it said.