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BOJ holds fire on stimulus, gives warnings over exports

TOKYO--The Bank of Japan (BOJ) on Friday warned the country's export and factory output picture was worsening but it held fire on launching more stimulus, saying the world's number three economy was still on a path to recovery.

The decision to stand pat was widely expected and investors have now turned their focus to a regular post-meeting press briefing from BOJ governor Haruhiko Kuroda at around 3:30 p.m. local time (0630 GMT).

Policymakers issued their unanimous decision amid questions about whether they would launch further monetary easing measures after Tokyo hiked sales taxes in April, denting consumer spending and the wider economy.

Kuroda, however, has said the impact of the levy hike has not as bad as expected.

He has pledged to take further action if necessary, after the bank last year launched unprecedented measures as part of a wider move to kickstart long-tepid growth.

On Friday, the BOJ acknowledged potential headwinds, saying that exports were declining while factory output “has shown some weakness,” after earlier data showed Japan's trade deficit more than quadrupled in June from a year ago.

However, the bank offered a mixed picture, saying that jobs and wage growth were “improving steadily,” with demand picking up after initially dropping in the wake of the tax hike.

“The effects of the decline in demand following the front-loaded increase have gradually begun to wane on the whole,” the BOJ said in a statement.

“Japan's economy has continued to recover moderately as a trend.”

'Upbeat outlook'

The yen hardly moved on the announcement, but the unit had earlier spiked on U.S. President Barack Obama's announcement that he had authorized U.S. air strikes on Iraq, prompting a dollar sell-off.

Despite the BOJ's decision to hold steady, many economists think the central bank will expand its easing measures later this year, or extend the time-frame for its existing program which was launched last year as a part of a wider bid to kick-start growth.

Many had thought that the negative impact of the tax hike would force the BOJ's hand to counter a downturn.

“The BOJ's upbeat outlook suggests that it has become rather unlikely that a more aggressive stance will be announced in October,” Capital Economics said.

“However, this doesn't mean that a more aggressive policy stance is off the table,” it added.

Last month, the bank slightly lowered its growth forecast for the current fiscal year to March to 1.0 percent from a previous 1.1-percent forecast. But it had been predicting growth of 1.5 percent in late 2013.

The BOJ's April-June Tankan survey showed Japanese business confidence sagged for the first time in six quarters owing to the April 1 sales tax increase, seen as crucial to chopping Japan's massive national debt.

The economy had been on the upswing as Prime Minister Shinzo Abe's growth blitz, dubbed Abenomics, helped sharply weaken the yen, giving a lift to exporters' profitability and driving a stock market rally last year.

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