Bank of Japan leaves monetary policy mostly unchanged
Japan's central bank has defied speculation it would act to boost growth by leaving its unprecedented monetary stimulus mostly unchanged.
The Bank of Japan (BoJ) did offer up to 300 billion yen (£1.89 billion) in support for disaster recovery financing on the southern island of Kyushu, where two earthquakes struck earlier this month.
Investors and economists had speculated that the central bank would step up its asset purchases, push the negative interest rate on bank deposits at the BoJ lower or act to expand its stimulus policies. The expectation had been reinforced by gloomy economic data.
The Japanese yen surged to 109.36 to the US dollar following the announcement after trading earlier in the day above 111.87 yen. More stimulus would have pushed the yen lower against other currencies by injecting additional cash into the economy.
The announcement followed news that factory output rose in March while core inflation and consumer spending fell.
Disruptions from twin earthquakes that struck on April 14 and 16 in Kyushu, killing 49 people, increased concerns over stalling growth, with some economists forecasting Japan may have returned to recession in the first quarter of the year.
The quakes affected a limited area, but still damaged suppliers to major manufacturers including Toyota and Sony.
BoJ governor Haruhiko Kuroda has said he will do whatever it takes to attain an inflation rate of about 2%, which the government's planners say is crucial for spurring growth.
Mr Kuroda is aiming to end deflation, which tends to discourage companies from investing in new plants and equipment and hiring more workers. But in March, Japan fell back into deflation, with core inflation excluding volatile food prices at minus 0.3%.
A recent strengthening of the Japanese yen and a relapse in crude oil prices have harmed progress toward the BoJ's inflation goal. The price index excluding energy prices rose 0.7% on an annual basis.
Japan's main share benchmark, the Nikkei 225 index, plunged 3.2% after the BoJ's announcement, to 16,739.75. It had gained 1.3% early on Thursday.
The dollar dropped to 109.19 yen after the BoJ decision from 111.88 yen earlier in the day.
The data released earlier in the day showed industrial output rose 3.6% in March from a year earlier, better than most forecasts, as manufacturers ramped up production of transport and metal working machinery and office equipment.
But consumer spending contracted by 5.3%.
Japan's jobless rate shrank to 3.2% in March from 3.3% the month before, while household incomes edged up 0.3% from a year earlier.
Raising wages is key to enticing consumers to spend more, but despite the tight job market, so far most increases have gone to low paid part-time workers whose budgets are already stretched.