Japan Holds Fire On Further Fiscal Stimulus

The Bank of Japan has decided not to introduce more fiscal stimulus, days after the country showed improved first quarter GDP growth.

Japan’s policymakers have kept the central bank's annual 80 trillion yen (£422.3bn) monetary easing programme in place after a two-day meeting.

On Wednesday the government released figures showing Japan's economy, which sank into a brief recession last year, expanded by a better-than-expected 0.6% from the previous quarter.

In annualised terms, growth was 2.4% between January and March – overshadowing an anaemic 0.2% growth in the US economy.

Japan’s latest GDP data pointed to improved capital spending and a housing market showing signs of strength, although exports dipped slightly and consumer spending was weak.

"Japan's economy has continued to recover moderately," the bank said, slightly more upbeat that the language it used last month. The Bank of Japan (BoJ) also pointed to "declining" public investment.

Despite the slightly more positive tone from the Japanese government, Japan is a country that appears to have been in economic recovery for 30 years with many false dawns along the way.

Economic challenges remain plentiful in supply. BoJ governor Haruhiko Kuroda has been forced to push back a timeline for hitting a 2% inflation target -- a central tenet of Prime Minister Shinzo Abe's plan to kickstart the economy -- although Mr Kuroda insists that price rises are around the corner.

Stripping out the impact of a sales tax rise last year, Japan's inflation rate in March came in at 0.2%, well short of the target.

That low figure had triggered speculation of further quantitative easing, although Japan is so far not increasing its economic stimulus.

Responding to the announcement from Tokyo, Marcel Thieliant from Capital Economics said: "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.

"Nonetheless, we remain convinced that the prospect of prolonged below-target inflation will eventually convince policymakers to step up the pace of asset purchases."