Bank of Japan keeps policy unchanged despite sagging growth

Japan's central bank on Thursday held its monetary easing programme unchanged at the current level even as the world's third-largest economy slipped into recession for a second time in as many years, and its exports sagged.

The Bank of Japan on Thursday decided by an 8-1 majority vote to continue to purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about ¥80 trillion.

With a view to encourage a decline in interest rates across the entire yield curve, the bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the bank's JGB purchases will be about 7-10 years.

The bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen respectively.

As for CP and corporate bonds, the bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively

Some analysts anticipate the BoJ to expand its ¥80 trillion ($665 billion) annual asset-buying scheme, launched more than two years ago to kick-start growth and end deflation - the chronic decline in prices that has sapped growth for years.

BoJ, however, opted to do nothing at the end of its two-day policy meeting, as it did last month - when expectations were even higher it would take action but before news on Monday that growth in gross domestic product (GDP) contracted for a second straight quarter.

BoJ governor Haruhiko Kuroda defended the policy stance at a news conference saying that the economy was better than the GDP figures suggested.

Consumer spending is "resilient" and exports broadly positive, meaning that "final demand as a whole is rising", he said.

"Japan's economy has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies," the bank said in a statement Thursday.

"Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, although some indicators have recently shown relatively weak developments," it said in the dry, carefully phrased language of global central banks.

Finance ministry data released earlier on Thursday showed that Japanese exports declined in October for the first time in more than a year, as economic growth in China slowed.

Overseas shipments by value declined 2.1 per cent, the first fall since August of last year, while the value of exports by Japanese companies to China shrank 3.6 per cent in October, the ministry said.

Prime Minister Shinzo Abe has been trying since late 2012 to revitalise Japan's economy through aggressive monetary easing by the Bank of Japan (BoJ) at its foundation – the so-called "Abenomics" policies.

The BoJ's bond-buying scheme has led to a sharp decline in the yen, seen largely as a positive as it can make Japanese products cheaper overseas.

But a lacklustre global economy, characterised by the slowdown in China and weakness in emerging markets, are posing challenges to Abe's play for a recovery.

Last month, the International Monetary Fund cut its growth forecast for the world economy for this year to 3.1 per cent from the previous 3.3 per cent, warning of increasing risks from the slowdown in China.