TOKYO (Thomson Financial) - The Bank of Japan has left its economic assessment unchanged in July, saying the world's second-largest economy is expanding moderately and will continue to do so as deflationary pressures ease.
"Japan's economy is expanding moderately," the BoJ said in its latest monthly report, repeating what it said in June.
The central bank said private consumption, which accounts for 55 pct of the domestic economy, has been firm as household income continued to rise modestly. This was the same wording it used last month.
The BoJ also said corporate fixed-asset investment, which makes up around 15 pct of the economy, "continued to increase on the back of high corporate profits," also in line with its June assessment.
But the BoJ made a footnote on the trend for industrial output, saying while the trend is broadly up "it has been flat most recently."
In its June report, the BoJ said output was on a rising rend.
The central bank also said that housing investment has been "more or less flat," downgrading its June assessment of a modest rise, with some fluctuation.
Looking ahead, the economy "is expected to continue expanding moderately," the BoJ said, adding that exports "are expected to continue rising against a background of expansion in overseas economies."
Domestic private demand "is likely to continue increasing, given high corporate profits and the moderate rise in household incomes," it added.
On inflation, the BoJ cited a continued increase in wholesale goods prices.
"The three-month rate of change in domestic corporate goods prices index (CGPI) has been positive mainly due to the rise in international commodity prices.
"Domestic CGPI is expected to continue increasing in the immediate future, primarily reflecting the rise in international commodity prices," the central bank said.
The CGPI jumped 2.3 pct year-on-year in June, rising for the 29th consecutive month, although the increase in wholesale prices has not yet buoyed consumer prices.
The BoJ said the year-on-year change in core consumer prices, which excludes fresh food but includes energy, "has been around zero" and is "expected to be around zero in the short term."
Japan's core consumer price index dipped 0.1 pct in May from a year earlier, declining for the fourth consecutive month.
Despite the CPI drop, the central bank said that "from a longer term perspective, consumer prices are projected to follow a positive trend" as the output gap continues to be positive.
Earlier today, the BoJ's nine policy board members voted 8-1 to maintain the overnight call rate target at 0.5 percent, as widely expected by the market. The next meeting is scheduled for August 22-23.
After reviewed the Outlook for Economic Activity and Prices released in April, the bank said Japan's economy is expected to "evolve broadly in line with" the April's outlook report.
The BoJ also said consumer prices in both the year to March 2008 and the year to March 2009, "are expected to evolve broadly in line with the projection in the Outlook Report."
In April, the BoJ said it sees the year-on-year rate of change in CPI at slightly above zero percent in the year to March 2008 and around 0.5 percent in the year to March 2009.
Meanwhile, the BoJ said the CGPI is "expected to turn out higher than the projection in the Outlook Report" in the year to March 2008 mainly due to the rise in international commodity prices, while the projection for the year to March 2009 "remains broadly the same."
In April, the BoJ said the CGPI is likely to maintain its upward trend, although this will be subject to future developments in prices of crude oil and other commodities, as well as foreign exchange rates.
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