01/02/2017 06:39 AST

Japan’s central bank upgraded its outlook for growth in the coming year on Tuesday but hedged its bets by keeping its lavish monetary easing unchanged.

The Bank of Japan (BoJ) cited easy lending conditions, rising exports and stronger government and corporate spending, in part linked to the 2020 Tokyo Olympics, as reasons to expect more robust growth in the world’s third-largest economy, despite recent weakness in consumer spending and investment.

But BoJ Gov. Haruhiko Kuroda said the central bank was keeping an eye on developments in the US after President Donald Trump took office pledging to “put America first.”

“As the US economy has big influence on the global economy and international financial markets we are going to closely watch the direction and impact” of his policies, Kuroda told reporters.

“In general, it’s feared that various policies based on protectionism may reduce world trade, slowing global economic growth,” the Kyodo News Service quoted Kuroda as saying.

Under Kuroda, the central bank has been pumping billions of dollars a year into the economy through purchases of government bonds and other assets.

It also has set its benchmark interest rate at minus 0.1 percent, to discourage banks from keeping money idle. The aim is to counter deflation and keep credit cheap, encouraging banks to lend and businesses to borrow more.

The BoJ left those policies unchanged in its first monetary policy meeting of 2017.

But it nonetheless forecast the economy will grow at a 1.4 percent annual pace in the current fiscal year, which ends March 31, up from an earlier estimate of 1.0 percent. It expects 1.5 percent growth in the coming fiscal year, up from the earlier 1.3 percent forecast.

The government reported Tuesday that industrial output rose in December, as factories rolled out more passenger cars and auto parts, though the 0.5 percent month-on-month increase was slower than November’s 1.5 percent expansion.

The recent improvements are partly due to a weakening in the Japanese yen against the dollar since the Nov. 8 US presidential election. They had triggered speculation the BOJ might have to begin scaling back its extreme monetary easing, part of a set of stimulus policies under Prime Minister Shinzo Abe that have been dubbed “Abenomics.”

The strategy has yielded mixed results. Growth has remained below expectations and inflation stuck near zero, stymieing efforts to “reflate” the economy and compel consumers and businesses to step up purchases to avoid future price hikes.

Household spending fell 1.5 percent from the year before in December, and 2.1 percent from the previous month, despite a 2.3 percent increase in average real income, which partly resulted from bonuses traditionally paid twice a year in Japan.

“The continued weakness of household spending and consumption in general is puzzling,” Masamichi Adachi of JPMorgan in Tokyo said in a research note. He said the frugality of older Japanese, who are growing as a share of the total population as the country ages and its birthrate remains low, was likely partly to blame.

Meanwhile, even though Japanese businesses are increasingly short-handed — some fast-food outlets and convenience stores have stopped operating round-the-clock due to a lack of staff — wages increases have been modest, and families are tending not to spend more than they have to.

Japan’s unemployment rate remained steady at 3.1 percent in December, and averaged that level for all of 2016, the lowest in 22 years.


AP

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