Economists Think Easing Is BOJ’s Next Action
A stronger yen would put downward pressure on prices through cheaper imports and cool sentiment among companies and households.
(Bloomberg) -- A majority of economists now see the Bank of Japan expanding stimulus as its next move, with a strengthening of the yen from Federal Reserve rate cuts seen as a key factor for triggering action, according to a Bloomberg survey.
While all 50 polled economists expect no policy change at the two-day meeting ending on June 20, 62% of them think the central bank will ramp up easing measures as its next step, compared with 48% in April, the survey showed.
Economists said that against a backdrop of economic weakness, a sharp strengthening of the yen after U.S. rate cuts would trigger action from the BOJ. They predicted the yen would strengthen to 105 if the Fed starts lowering rates and that it would need to hit 100 to trigger action. The dollar was trading at 108.3 on Friday afternoon.
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A stronger yen would put downward pressure on prices through cheaper imports and cool sentiment among companies and households, weakening upward price momentum that the BOJ sees as critical to its mission to generate stable inflation.
BOJ Governor Haruhiko Kuroda said last week that the BOJ must respond swiftly if price momentum is lost and that the bank still had scope to unleash big stimulus. He added that the current state of the economy didn’t warrant more action.
Still, yen movements following possible Fed rate cuts could sway Kuroda’s position. Some 60% of the polled economists said they expected extra stimulus from the BOJ within six months of the Fed lowering its benchmark rates.
The survey also showed that speculation has further cooled that Prime Minister Shinzo Abe will postpone a sales tax hike scheduled for October. More than eight out of 10 economists expect the increase to go ahead as planned.
Japan’s gross domestic product expanded a better-than-expected 2.2% in the first quarter, offering support for the government’s view that the economy is holding up relatively well despite a global slowdown and trade tensions. Abe has also included the plan in his party’s platform for a July election.
Still, economists expect the government to go beyond the countermeasures already unveiled to offset the negative hit to the economy from the higher tax rate. Some 92% of respondents said the government would take additional measures to support the economy through the tax increase.
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Masahiro Hidaka in Tokyo at mhidaka@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Paul Jackson, Henry Hoenig
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