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Bank of Japan raises GDP forecast as economic prospects brighten

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Bank of Japan raises GDP forecast as economic prospects brighten

The Bank of Japan raised its economic growth forecast for fiscal year 2014, while keeping the pace of monetary policy intact. The central bank announced it would make no changes to the unprecedented stimulus program it launched back in April, as officials are confident the economy is on pace to meet its inflation target.

Earlier this year the BOJ said it would inject $1.4 trillion into the Japanese economy in less than two years in an effort to curb deflation and double the nation’s monetary base. Despite inflation growth, market participants are still concerned current stimulus measures might not be enough to reach the central bank’s targets. Economists are worried the current strategy won’t be enough to offset the impact of Japan’s first sales tax hike since 1997.

The BOJ expects the economy to grow 1.5 percent in the next fiscal year, which begins April 2014. In its semi-annual outlook, the central bank made no changes to its inflation outlook, keeping its core inflation forecast at 1.3 percent in 2014 and 1.9 percent in 2015.

“The BOJ is being too optimistic given there will be a sales tax hike and could be forced to downgrade these numbers later,” said Takuji Aida of Societe Generale Securities. The tax hike could force the BOJ “to ease policy again in the second quarter of next year,” Aida later added.

Japan’s National Consumer Price Index, which measures price movements of a representative sample of goods and services, accelerated at an annualized rate of 1.1 percent in September, according to the country’s Statistics Bureau. The annualized reading beat forecasts, which called for a 0.9 percent hike. Japanese Prime Minister Shinzo Abe has promised to increase efforts to overcome decades-long deflation, but cautioned the market the government is only halfway through its current initiative.

The BOJ’s decision to maintain the pace of monetary easing comes one day after the United States Federal Reserve opted to leave its own massive bond buying program intact. The Fed balance sheet has swelled to over $3.6 trillion since quantitative easing was first launched in 2009.

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