BOJ Expected to Stand Pat, Raise Growth Forecast: Decision Guide
BOJ Expected to Stand Pat, Raise Growth Forecast: Decision Guide
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The Bank of Japan is set to keep policy unchanged at its meeting Tuesday as investors turn their focus to the bank’s economic outlook amid signs a global slump is bottoming.
All 42 economists surveyed by Bloomberg forecast the BOJ will stand pat on interest rates, asset purchases and its guidance on policy. Attention will likely focus on the central bank’s quarterly forecasts and any signs of growing confidence in an economic recovery that also makes future easing action less likely.
The bank is expected to raise its economic growth projection for the first time in a year, buoyed by a $120 billion stimulus package unveiled last month by Prime Minister Shinzo Abe.
Even with a better growth outlook, Governor Haruhiko Kuroda is widely expected to signal he’s still leaning toward more easing.
The BOJ won’t want to diverge far from the positions of the Federal Reserve or the European Central Bank, both of which say they’re cautiously assessing data as risks remain high. It’s also too early for the BOJ to judge the economic impact of a sales tax hike in October that likely pushed the economy into reverse in the last three months of 2019.
Extreme weather that kept shoppers at home and disrupted production in the autumn also makes it difficult to assess the true strength of the economy from recent statistics.
“The BOJ needs to see more data before dropping its guard, even if the stimulus package allows for growth projections to be upgraded,” said economist Hiroshi Miyazaki at Mitsubishi UFJ Morgan Stanley.
BOJ watchers will also be looking for any slight changes in language that could signal the board is less concerned about risks to the economy or price momentum. At its December meeting, the BOJ said risks stemming from developments overseas were elevated, a description that gave a less critical impression than earlier statements describing the danger as increasing.
BOJ to Stand Pat For Now But Tightening View Is Growing: Survey
A growing majority of economists say the bank’s next eventual move will be to rein in stimulus, rather than add it. Although none of the analysts surveyed by Bloomberg expects that to happen soon, several project the BOJ will change its forward guidance in the direction of policy normalization as early as July.
Last week’s U.S.-China trade deal and recent stability in financial markets are factors behind the changing expectations. The yen last week touched its weakest level against the dollar since May during Asian trading hours and Japanese stocks hit the highest mark in more than a year.
The BOJ is expected to release its policy statement and its economic forecasts in the early afternoon. Kuroda usually holds a press conference from 3:30 p.m.
What Bloomberg’s Economist Says
“The Bank of Japan will probably keep policy unchanged. There’s little reason for any shift. Fiscal stimulus should cushion a slowdown, the output gap is positive (if smaller), the yen is weaker, and the U.S. and China have inked a trade deal. But with inflation stagnant and far from the 2% target, the BOJ has to keep going.”
--Yuki Masujima, economist
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What to look for
- How the BOJ measures the economic boost from the Abe administration’s fiscal package will likely be the key point at the meeting. The government is now projecting 1.4% growth for the year starting in April, double the BOJ’s current forecast and far above the consensus among economists of 0.6%.
- Any upgrade in the BOJ’s forecast for the following fiscal year is likely to further reduce expectations for more easing. That’s because a faster growth projection that far out would suggest the bank now expects the economy to expand at a pace well above its potential, a factor that would boost inflation.
- With improved growth prospects, there’s a good chance the BOJ will leave its price forecasts untouched for the first time in two years, another factor suggesting no need for additional easing action.
- When Abe last introduced stimulus, in 2016, the BOJ devoted an entire paragraph of its policy statement to discussing the package’s potential synergistic effects. This time, the BOJ may choose not to do that because it likely wants to avoid any suggestion it is simply facilitating government spending by keeping long-term interest rates at zero.
- Bond traders will keep a close watch on whether Kuroda seems satisfied with the current shape of the yield curve after he said last month that he wouldn’t mind it being steeper. Yields on Japan’s super-long bonds rose last week to the highest since November.
Policy Recap
- Pledge to keep interest rates at the present low-level or lower as long as necessary.
- A rate of -0.1% on some reserves kept at the bank by financial institutions.
- Yield target of about 0% for 10-year Japanese government bonds, with a trading range of about 0.2 percentage point on either side of the mark.
- A target of increasing Japanese government bond holdings by about 80 trillion yen ($726 billion) a year is now secondary to controlling interest rates. The actual pace of JGB purchases has fallen to well below half that rate.
- A guideline to increase holdings of exchange-traded funds by 6 trillion yen a year. Actual purchases vary widely from month to month, depending on market conditions.
To contact the reporters on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net;Sumio Ito in Tokyo at sito58@bloomberg.net
To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Jason Clenfield
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