BOJ holds steady, trims growth forecast on soft exports

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TOKYO The Bank of Japan trimmed its economic growth forecast on Wednesday but held off on offering fresh stimulus, convinced that an expected pick up in consumption will help accelerate inflation toward its 2 percent target.

Defying lingering market scepticism over its rosy outlook, the central bank roughly maintained its forecasts that see inflation reaching its target in the fiscal year beginning in April 2016.

Nodding to signs of weakness in external demand, the BOJ offered a slightly gloomier view on exports and output to say they have been "picking up albeit with some fluctuations."

Last month, it said exports and output were picking up.

"The BOJ's growth forecasts are not too far off the mark, but the inflation forecasts look extremely optimistic," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"The BOJ will likely have to downgrade these inflation forecasts again ... Since (Governor Haruhiko) Kuroda is sticking by his 2 percent inflation target, this would imply more monetary easing at some point."

As widely expected, the BOJ kept intact its pledge of expanding base money at an annual pace of 80 trillion yen ($648 billion) via aggressive asset purchases.

Japanese policymakers, who had braced for market turbulence from Greece's debt crisis and China's stock market rout, were relieved when Beijing's rapid-fire support steps restored a measure of calm to its markets and Athens clinched a last-minute conditional bailout.

A quarterly review of its long-term forecasts underscored uncertainties surrounding the BOJ's projections with the economy likely to have stalled in April-June on weak exports.

The BOJ cut its growth projection for the current fiscal year to March 2016 by 0.3 percentage point to 1.7 percent.

The nine-member board also cut by 0.1 point to 0.7 percent this fiscal year's consumer inflation forecast. The estimate for fiscal 2016 was trimmed by the same margin to 1.9 percent, and that for fiscal 2017 to 1.8 percent from 1.9 percent.

EXTERNAL OUTLOOK UNCERTAIN

At a press conference scheduled for early afternoon, Kuroda is likely to reiterate his optimism on the global outlook but may point to heightening uncertainty over the bank's scenario that solid U.S. growth will pull emerging economies out of the doldrums next year.

Japan's economy likely entered a soft patch on weak exports and household spending, though analysts expect growth to pick up in July-September as rising wages lift consumption.

While the BOJ expects robust U.S. demand to prop up growth in Japan's Asian export markets, pessimists in the board fret that shipments may remain soft for longer than expected given China's economic woes and lackluster global growth.

The International Monetary Fund trimmed its global growth forecast to take into account the impact of recent weakness in the United States.

The BOJ is confident a solid economic recovery will help accelerate inflation to 2 percent by around September next year.

Many analysts doubt price growth will accelerate so quickly and some predict additional stimulus to come later this year.

(Additional reporting by Tetsushi Kajimoto and Kaori Kaneko; Editing by Shri Navaratnam)