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BOJ downgrades assessments of exports, output amid China slowdown

Bank of Japan Governor Haruhiko Kuroda (Mainichi)

TOKYO (Kyodo) -- The Bank of Japan said Friday that a slowdown in overseas economies is beginning to weigh on exports and production at home, though Governor Haruhiko Kuroda stressed that additional easing measures are not yet necessary.

After a two-day meeting, the central bank's board decided to maintain its monetary policy of ultralow interest rates and asset purchases, and retained its headline assessment that Japan's economy is "expanding moderately."

But it warned that exports and industrial output have "shown some weakness recently" on the back of a slowdown in overseas economies, a less optimistic view than in January when it said both were on an "increasing trend."

Recent data have shown economic expansion waning in Europe and China, with Asia's biggest economy seeing its lowest growth rate in nearly three decades last year. Uncertainty over the global outlook has already led central banks in the United States and the eurozone to freeze plans to hike interest rates.

Japan has been affected by falling demand for key exports such as manufacturing equipment and components used by the tech industry.

According to one key indicator, the country's latest expansionary phase, touted by the government of Prime Minister Shinzo Abe as the longest since the end of World War II, may have already ended late last year.

But Kuroda told a post-meeting press conference that the majority of board members agreed the situation did not yet warrant additional easing measures.

"While we do need to be aware of the risk of a further downswing in overseas economies...the main scenario is for the European and Chinese economies to begin improving in the latter half of the year," he said.

The board voted 7-2 to maintain a short-term policy interest rate of minus 0.1 percent and keep long-term yields near zero percent, with room for some movement in either direction. It also kept a pledge to keep rates extremely low for "an extended period of time."

The dissenters were Goushi Kataoka, who called for an expansion of monetary stimulus, and Yutaka Harada, who opposed the ambiguity of the long-term yield guideline.

The board was unanimous in deciding to continue purchases of risky assets such as exchange-traded funds.

Kuroda said the central bank will continue aiming to raise inflation to 2 percent as soon as possible, despite recent assertions by Finance Minister Taro Aso that the price target is not the be-all and end-all of monetary policy.

"There isn't a single person that is outraged inflation hasn't reached 2 percent. Fixating on it will lead to trouble," Aso told reporters Friday morning after he made similar comments in parliament earlier in the week.

The BOJ has pursued the inflation target since 2013 in a bid to dispel Japan's deflationary woes, wherein steadily falling prices ate into corporate profits and in turn workers' wages and household spending for more than a decade.

Initially targeting an expansion of Japan's monetary base, the central bank shifted course in 2016 and began targeting the yield curve, or the difference between short-term and long-term interest rates.

Kuroda said upward momentum in prices remains intact, and that BOJ officials are "closely watching" annual wage negotiations between employers and workers.

Major manufacturers such as Toyota Motor Corp. and Panasonic Corp. have said they will raise wages but not by as much as last year, a disheartening sign for households.

At present, inflation remains below 1 percent, and is expected to come under downward pressure from falling mobile carrier fees and the introduction of free preschool education later this year.

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