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BoJ rate decision signals growing confidence in Japan’s economy

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BoJ rate decision signals growing confidence in Japan’s economy

The Bank of Japan refrained from making changes to record stimulus after policymakers voted unanimously to retain the goal of expanding the nation’s monetary base by around $720 billion a year.

The central bank opted to hold the pace of monetary stimulus the same amid surging business confidence. Market participants have been speculating whether the BoJ’s current measures are sufficient to stimulate growth in an economy that has stagnated for several decades. Earlier in the year the BoJ announced it would double Japan’s monetary base in less than two years in an effort to combat decades-long deflation.

Japanese Prime Minister Shinzo Abe reaffirmed his confidence in the economy by implementing a long-awaited sales-tax increase. Abe believes the economy is strong enough to weather the tax hike, which is the country’s first in 16 years. The decision increases the sales tax from 5 percent to 8 percent.

BoJ Governor Haruhiko Kuroda announced no changes to the central bank’s lending rate, currently marked at 0.1 percent. Kuroda and his officials are monitoring the US budget impasse, now in its fourth day. He warned a prolonged US budget stalemate could have a significant impact on the global economy, which is still recovering from recession. A prolonged government shutdown could destabilize global financial markets and send Japan back down a rocky course. Kuroda provided reassurance the central bank was ready to increase its record stimulus if Japan’s recovery was threatened in any way.

The Japanese economy is expected to contract at an annualized rate of 4.5 percent in the second quarter of 2014 before returning to growth, according to a median estimate of economists surveyed by Bloomberg.

“The economy is a living creature and we can’t control domestic or external risks,” Kuroda would later add after the policy announcement. The central bank governor reassured the markets he would “continue to respond carefully and appropriately.”

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