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Growth seen after stimulus - BOJ

Growth seen after stimulus - BOJ

(24 May 2013 – Japan) The Bank of Japan (BOJ) reported growth is starting to pick up as it keeps policy steady following Prime Minister Shinzo Abe’s aggressive fiscal and monetary stimulus boost in April.

The central bank said the stimulus had boosted sentiment and a weaker yen, despite concerns over recent volatility in the bond market and an uncertain global outlook.

As expected, the central bank stuck with April's massive quantitative easing, in which it pledged to end 15 years of deflation by doubling its Japanese government-bond holdings in two years as it expands the supply of money at an annual pace of ¥60 trillion (A$600 billion) to ¥ 70 trillion yen.

Despite the BOJ's enormous Japanese Government Bond (JGB) purchases - buying the equivalent of 70 percent of new government debt issuance - bond prices have sold off recently, sending the 10-year yield to a one-year high of 0.92 percent last week as the BOJ's presence has dried up market liquidity.

'The BOJ is walking a very narrow path trying to engineer a gradual, not a sudden, rise in long-term rates backed by improvements in the economy,' an official with knowledge of the central bank's thinking said before the policy board's two-day meeting.

The BOJ unleashed the world's most intense burst of stimulus last month, promising to inject US$1.4 trillion (A$1.43 trillion) into the economy in less than two years to meet its pledge of achieving 2 percent inflation in roughly two years.

Doubts have emerged over whether that two-year time frame is realistic.

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