Business / Economy

Bank of Japan expected to hold its fire this week after Fed and ECB decisions

Bloomberg, Reuters

The Bank of Japan will leave monetary policy unchanged this week as easing trade tensions and calmer financial markets relieve some of the pressure to act, a Bloomberg survey suggests.

About three-quarters of 48 economists said the BOJ will leave policy unchanged at the end of its two-day meeting Thursday, hours after the Federal Reserve is forecast to cut interest rates.

The European Central Bank last week cut rates and revived bond purchases, part of a global policy shift that has raised expectations the BOJ will follow suit.

Still, nearly half of analysts surveyed said the BOJ Policy Board will add monetary stimulus in some form either this week or at its meeting in October, with the number evenly divided on the timing at 23 percent each.

A strong and growing majority of BOJ watchers — 83 percent in the latest survey — now see additional stimulus as the BOJ’s next policy step, though they have different opinions on what forms it would take and even whether certain moves would amount to stimulus.

About a third of those surveyed predicted the BOJ will strengthen its pledge to keep interest rates extremely low this week, while 21 percent said it will widen the targeted trading range for the 10-year yield on Japanese government bonds.

Analysts also see a growing chance that the BOJ will lower its negative interest rate on some bank reserves from the current minus 0.1 percent, with 23 percent predicting it will happen by the end of the year. That’s up from 6 percent in July.

BOJ Gov. Haruhiko Kuroda said following the last policy meeting in July that the bank has become “more positive” about adding stimulus, reinforcing market expectations for action.

The BOJ has plenty of reasons to be ready. While tensions have eased lately, the U.S.-China trade war looks likely to keep weighing on Japan’s exports, as does a slowdown in the global economy. The consumption tax due to take effect next month raises concerns about domestic consumption.

Risks from the trade war and global economy were cited by 40 percent of analysts as the BOJ’s biggest worry, with 21 percent pointing to a strong yen and 19 percent saying the policy actions of other central banks.

Risk-off sentiment and the global policy shift pushed the yen to the strongest level since 2016 last month, while the yield on 10-year JGBs touched a three-year low this month. But recent reversals have pushed both the currency and yields within the BOJ’s comfort zones.

Still, acting comes with risks for the BOJ. A slight majority of analysts surveyed — 53 percent — said they thought it was likely that any move would backfire by ultimately demonstrating how depleted the BOJ’s firepower is after more than six years of ultra-aggressive stimulus.

Kuroda has said the bank will ease “without hesitation” to prevent risks from derailing Japan’s recovery.

But the Policy Board is split between those who are keen to ramp up stimulus and those more wary of the rising cost of prolonged easing, such as the strain on financial institutions.

GET THE BEST OF THE JAPAN TIMES
IN FIVE EASY PIECES WITH TAKE 5