BOJ Expected to Hold Firm Even as Economists Flag 130 Yen Level
BOJ Expected to Hold Firm Even as Economists Flag 130 Yen Level
(Bloomberg) -- The Bank of Japan is widely expected to stand pat next week even as speculation grows that it might adjust policy before the end of the year to account for the weakening yen, with economists flagging the 130 mark against the dollar as a key level.
Some 89% of 45 analysts forecast no change in the central bank’s settings for interest rates and asset purchases at the end of a two-day meeting next Thursday, according to the poll. For the first time in a while, some 11% predict a shift in forward guidance in the direction of tightening policy.
Reflecting the impact of recent sharp yen movements and soaring energy prices, some 45% said it’s likely or very likely that the central bank will take some kind of action this year to address a weak yen or inflation, more than double the 19% in the previous poll in March.
The yen needs to reach 130 against the dollar to prompt the BOJ to consider adjusting its policy or communications, according to the median estimate in the poll. The yen was still close to the 125 mark when the survey started on Thursday, but briefly reached a fresh 20-year low of 129.40 Wednesday morning in Tokyo after the poll closed.
Click here to read the full results.
BOJ Governor Haruhiko Kuroda has repeatedly talked of the need to maintain stimulus to support the economy’s recovery from the pandemic, a stance that is helping drive the currency down.
The BOJ’s defense of its 0.25% ceiling on 10-year government debt through repeated fixed-rate buying operations this week further underlines its commitment to keeping rates at rock-bottom levels for now, even as the Federal Reserve prepares to raise borrowing costs again. Fed officials are even hinting that the pace of U.S. tightening could be faster than market consensus.
Economists’ growing opinion that the BOJ might tweak policy or its messaging is likely related to their dominant view that Finance Minister Shunichi Suzuki won’t intervene in the currency market to stop the yen’s depreciation. Some 81% of them said direct intervention is unlikely or very unlikely.
Referring to basic economic and market conditions, the International Monetary Fund’s mission chief to Japan said Wednesday that the weakening yen moves reflected fundamentals, signaling little cause for the nation to intervene.
Read More: Crippling Hike the Only Way BOJ Could Steady Yen
Another key focus of the upcoming meeting is the BOJ’s quarterly outlook report. The central bank will probably raise its price projection to between around 1.5% and 1.9% for the year started this month, compared with a 1.1% forecast in January, people familiar with the matter told Bloomberg last week.
Private economists expect the BOJ to push up its forecast to 1.7% for the year before falling to 1.2% in the following year, according to the survey. Kuroda has repeatedly said that the emerging cost-push inflation isn’t sustainable and will be negative for the economy.
Still, following a spike in energy and commodity prices, Japan’s key inflation measure is very likely or likely to touch 2% sometime this year, according to 84% of the respondents, compared with 44% in the March survey.
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