Japan's central bank optimistic about economy

Bank of Japan (BOJ) Governor Haruhiko Kuroda said Thursday the economy here is on track towards achieving the central bank's 2 percent inflation target in two years and will continue to recover at a moderate pace despite the consumption tax hike in April. Kuroda said earlier Thursday that the sales tax hike in April would impact the economy and consumer demand would likely spike prior to the hike and diminish thereafter, but the economy was strong enough to weather the storm. "The economy is expected to continue a moderate recovery as a trend, while it will be affected by the front-loaded increase in demand ahead of the consumption tax hike and subsequent decline after the hike," Kuroda said, adding that the bank's inflation target was in sight. "Japan's economy is making steady progress toward achieving the BOJ's 2 percent price target," Kuroda told a quarterly meeting of the bank's regional branch managers Thursday. The BOJ chief added that large-scale monetary easing initiatives put into place in April were ensuring the economy was underpinned to an extent that decades of deflationary pressure could finally be reversed and the BOJ and Finance ministry's inflation target be achieved within the deadline. "The bank will continue with quantitative and qualitative monetary easing, as long as it is necessary for maintaining the 2 percent target stable," Kuroda said. Kuroda's comments and the central bank's upgrading Thursday of its economic assessment of five of the country's nine regional economies compared with three months earlier follow upbeat economic data released by the bank and the government earlier Thursday. The Cabinet Office said Thursday that Japan's core private- sector machinery orders surged a seasonally adjusted 9.3 percent on month in November, marking their highest level in over five years, and dwarfing median economists'forecasts for a 1.2 percent increase. The office said that this was evidence that businesses here were exiting austerity modes and ramping up their investments ahead of the consumption tax hike in April. The latest data on the core machinery orders, which are widely considered to be a key gauge of capital spending in the coming six to nine months, showed the value of orders total 882.6 billion yen (8.5 billion U.S. dollars). The amount marked the largest total orders for a month in five years, the Cabinet Office said, and subsequently the government raised its assessment on the orders, stating that they were now " increasing as a trend,"as opposed to October's assessment which saw orders"rising gradually as a trend." The Cabinet Office also said that core orders, excluding those for ships and electric power utilities, jumped 16.6 percent in the recording period, compared to a year earlier, raising hopes in the government for a continued increase in capital expenditure, which underpins overall economic growth by creating new jobs and encouraging increased consumer spending as wages rise. Increasing business investment is a good news for Prime Minister Shinzo Abe and his aggressive"Abenomics" brand of economic policy, which, after a year, has yet to generate a significant uptick in capital spending, despite tax incentives to encourage increase business spending and ultra-low interest rates to spur lending, analysts said Thursday. They added that the economy in general had received another shot-in-the arm Thursday based on preliminary data released by the central bank, showing that Japan's wholesale prices had increased 1.3 percent in 2013 after dropping 0.9 a year earlier. According to the bank's data, the index of corporate goods prices stood at 101.9 against the 2010 base of 100, with prices of coal and petroleum products jumping 8.8 percent from a year earlier, and utility bills increasing 8.4 percent due to rising costs for fossil fuel imports on a weakening yen. Agriculture, forestry and fishery products, according to the BOJ, also significantly contributed to pushing up overall prices, with the index here gaining 3.5 percent on marginally higher import prices. The central bank added that export prices surged 11.6 percent from the previous year, marking the first yen rise in six years, but relinquished 1.9 percent on a contract currency basis. Import prices, meanwhile, gained 14.5 percent in yen terms, the bank said, but dropped 1.7 percent on a contract currency basis. December's wholesale prices were up 2.5 percent from a year earlier, marking the ninth consecutive month of increase, the BOJ said, adding that on a month-on-month basis, the December index gained 0.3 percent from the previous month. The prices were also lifted by rising prices for oil and coal products due to the yen's slide versus other major currencies as well as higher lumber and wood product prices on increased demand from construction companies for new building projects ahead of the April tax hike. In December alone, export prices rose 12.4 percent from a year before in yen terms and import prices added 17.6 percent, the bank said. Leading economists here said that while the latest macroeconomic data is a boon for the central bank and the government, with the overall and regional economic assessment upgrades and a positive shift in prices and capital spending boding well in the short term, it still might be a tall order for the bank to hit its inflation target within its two year timeframe. They asserted that the tax hike is likely to impact prices, business investment and see the inflation target deadline delayed despite Kuroda's optimism.