BOJ Considers Refraining From Extra Stimulus in October

(Bloomberg) --

The Bank of Japan is currently considering refraining from extra stimulus at its October meeting but will look for a fresh way to show its continued readiness to take action, according to people familiar with the matter.

BOJ officials point to the relative calm in financial markets and the lack of a clear deterioration in risks to prices as reasons for holding back on moving the central bank’s biggest policy levers, the people said. Officials have yet to see the global slowdown taking a toll on demand at home and view momentum toward 2% inflation as maintained, according to the people.

Still, the officials will reach their decision by looking at economic data and market conditions right up to the end of a two-day policy on Oct. 30-31, they said. A major change in the downward risks to the economy or prices in the meantime would still prompt action, they said. Data due for release before the meeting next week includes Tokyo inflation figures for October.

BOJ Is Said to Consider Taking Gloomier View on Economic Outlook

If interest rates and asset purchases are left unchanged at the meeting, the BOJ will face the challenge of how to communicate its willingness to take action after fueling easing speculation among economists with its call for a review into the effects of the global downturn on prices.

Governor Haruhiko Kuroda fanned those expectations by saying in September that he was leaning closer to adding stimulus and by later talking up the need to lower short-term rates if action was taken.

Showing that the BOJ’s willingness to stimulate the economy is as aggressive as it is at the Federal Reserve and European Central Bank will be vital to avoid unwelcome gains in the yen, some of the people said.

One potential communication tool is the BOJ’s forward guidance. Currently the bank pledges to keep extremely low rates until at least around spring 2020.

While BOJ officials will likely discuss the pros and cons of adjusting the guidance, some officials don’t see it as having any effect, according to some of the people. That means the BOJ may need to be creative in coming up with another way to signal its continued fighting stance, some of the people said.

Dow Jones Newswires earlier reported that some BOJ policy makers see little merit in an interest-rate cut this month.

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