The Bank of Japan (BOJ) refrained from adding to unprecedentedmonetary stimulus as Governor Haruhiko Kuroda said the blow to theeconomy from last week's sales-tax increase will fade during thesummer.

The central bank will continue to expand the monetary base at apace of 60 trillion yen to 70 trillion yen ($682 billion) per year,it said in a statement today in Tokyo, as forecast by all 36economists in a Bloomberg News survey. At a press briefing, Kurodasaid the BOJ would always adjust policy without hesitation asneeded, including easing or tightening.

While the central bank highlighted a pickup in privateinvestment and increasing industrial production, economistsforecast the BOJ will boost stimulus by July, according to aBloomberg News survey ahead of today's decision. A drop in aconfidence indicator, announced separately today, to the lowestsince 2011 highlighted risks to the recovery as the tax bump dampsconsumption.

“The BOJ seems confident in its economic assessment andoutlook,” said Masaaki Kanno, chief Japan economist at JPMorganChase & Co. At the same time, “there is an above 50 percentchance of easing in July,” he said.

The yen strengthened after an initial drop following the BOJ'sdecision, trading up 0.4 percent at 102.71 per dollar at 5:26 p.m.in Tokyo. The Topix index, which has climbed 6.6 percent over thepast year, fell 1.9 percent today, down for a third day aftertechnology shares extended a retreat.

Outlook Drops

“Flexibility is one of the most important aspects of monetarypolicy,” Kuroda said. “We are on track to the price stabilitytarget, so we are not considering any kind of additional easingnow.”

The BOJ is gauging the extent of an anticipated setback to theeconomy and prospects for achieving its 2 percent inflation goalafter last week's 3-percentage-point increase in the sales tax, thefirst since 1997. The price goal excludes the effects of changes inthe sales tax.

The central bank's benchmark price gauge rose 1.3 percent inFebruary from a year earlier, and companies see price gainspersisting for at least the next five years, in what would mark anend to 15 years of deflation.

A gauge of economic expectations of people such as taxi driversand restaurant workers tumbled to 34.7 in March from 40 a monthearlier, according to the Economy Watchers survey released today bythe Cabinet Office in Tokyo.

“Economic activity will likely weaken abruptly in the secondquarter,” said Marcel Thieliant, Japan economist at CapitalEconomics in Singapore.

The economy is forecast to shrink an annualized 3.5 percent inthe three months from April, breaking a projected six straightquarters of growth, according to a separate Bloomberg survey ofeconomists.

The economy has continued to recover moderately, “albeit withsome fluctuations due to the consumption tax hike,” the BOJ said inits statement.

Kuroda said he will adjust record easing that the BOJ began inApril last year should prospects for achieving the price target bejeopardized. The challenge for Kuroda will be to avoid anyperception of incremental policy steps, an approach he has vowed toavoid.

Forty-four percent of economists predict the BOJ will add tostimulus in July, when the strength of an economic rebound willbecome clearer, the Bloomberg News survey showed.

The central bank will probably double the pace at which itaccumulates exchange-traded funds, to 2 trillion yen annually, inmonths ahead, according to the poll. The bank could boost annualbond purchases by at least 10 trillion yen, according to thesurvey.

Stimulus Package

Finance Minister Taro Aso said last week that the next fewmonths will be key in a decision on whether to go ahead with afurther increase in the sales tax to 10 percent as the governmenttries to rein in the world's largest public debt burden.

“Given it takes months for the effects of monetary policy topenetrate the economy, I predict easing later this month,” saidYuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.in Tokyo. “It's hard for the BOJ to achieve the same impact withstimulus again, so a surprise has to come from the timing.”

Seventy-eight percent of the economists in the poll said Abewill have to compile another stimulus package in the fiscal yearstarting this month to support the economy.

Kuroda said last month that Japan won't see a repeat of therecession that followed the sales tax increase in 1997, pointing toJapan's now-stronger financial system and an absence of a regionalfinancial crisis that hurt the country's exports then.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.