Many Bank of Japan policymakers grew more confident on the country's economic recovery last month due to receding pessimism over the US economy and signs of an export rebound, minutes of its January 24-25th rate review showed.
With optimism rising over the outlook, the government is likely to upgrade its assessment of the economy in its monthly report for February as exports and factory output show clear signs of recovery, the Nikkei business daily said today.
The second straight month of upgrades by the government would follow the BOJ's decision on Tuesday to revise its economic assessment upward to say it is gradually emerging from a slowdown.
In its report due on Monday, the government will stop short of announcing an end to stagnation but will say there are increasing signs that an exit from the doldrums is near, the paper said without citing sources.
A rebound in exports and output, driven by robust demand in fast-growing Asia, has underscored the BOJ's view that the economy is heading towards a moderate recovery after a mild contraction in the final quarter of last year.
That has fuelled growing expectations that no imminent monetary easing is on the horizon unless a severe and sudden financial market shock threatens the fragile recovery.
At the January rate review, one board member said the recovery may come around spring, while another member said there was a good chance it may be as early as the first quarter, minutes of the meeting showed on Friday.
"However, a few members said that while the chance of Japan's economy resuming a moderate recovery has heightened, uncertainty remains on developments thereafter," the minutes showed.
At the January meeting, the BOJ nudged up its price forecast for the year starting in April and forecast an early escape for Japan from the economic doldrums in a quarterly review of its growth forecasts. It kept monetary policy steady and maintained interest rates at a range of zero to 0.1 percent.
At a subsequent meeting in February, the central bank also kept policy on hold and toned up its optimism on the economy.
Minutes of the January rate review showed that the BOJ's nine-member board was mindful of risks and remained cautious about the outlook for developed economies. Many members said balance sheet adjustments will continue to weigh on US growth, while some warned that Europe's sovereign woes may hurt Japan's economy if they destabilise markets, the minutes showed.
The board also debated the fallout from the recent spike in commodity costs with many saying it may affect the consumer price index (CPI), the central bank's key price gauge, down the road.
While one member said the rise in commodity costs will translate into higher prices for other goods and services, a few said the transfer of costs would be limited, according to the minutes.
The BOJ has pledged to keep interest rates effectively at zero until price stability, which it views as consumer inflation around 1 per cent, is in sight. It expects Japan to achieve core consumer inflation of 0.3 per cent in the year beginning in April and 0.6 per cent the following year.
Reuters
