BoJ Holds at 0.5%, CPI, Production and Retail Data Weak

As expected, the Bank of Japan voted unanimously to keep its benchmark interest rate at 0.5%. In addition, weaker-than-expected core CPI, -0.3% vs. -0.2% (expected), a surprising negative read on industrial output, -0.6% vs. +0.9%, and a sixth consecutive monthly decline (-0.7%) in retail sales, all raised expectations there will be no chance of a rate hike before the upper house elections in July. The drop in CPI was the largest in two years. However, the closely watched core CPI in Tokyo was flat. March unemployment was unchanged at 4.0%. In its semi-annual outlook, the BoJ said it expects core CPI to rise 0.1% over the next year ending in March and 0.5% in the twelve months following that. Previously it had expected core CPI to increase 0.5% this year. BoJ Governor Toshihiko Fukui commented, "Rate adjustments need to be made if the economy's expansionary trend remains intact and price trends in the long term are expected to be firm, even if prices are falling in the short term." Concerns about weakness in the U.S. economy linger, but the BoJ noted a difficult housing market has not "so far spilled over into the wider economy, as evidenced by continued firmness in private consumption."

Sources: Press release [pdf], Bloomberg [i, ii]
Commentary: Preparing For the Deluge of Japanese Data • Can Japan's Newest Real Estate Boom Be Sustained? • Yen Carry Trade: How Much is Too Much?
Stocks/ETFs to watch: Mitsubishi UFJ Financial Group (MTU), Mizuho Financial Group (MFG). ETFs: iShares MSCI Japan Index (EWJ), CurrencyShares Japanese Yen Trust (FXY)
Related: Bank of Japan's Outlook for Economic Activity and Prices

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