Bank of Japan to Maintain Easing as Suga Takes Japan’s Top Job

The Bank of Japan is widely expected to keep its stimulus untouched later Thursday as newly elected Prime Minister Yoshihide Suga inherits the job of leading a recovery from the country’s worst economic crisis in decades.

Some 95% of 44 economists surveyed by Bloomberg see the BOJ leaving its interest rates and asset purchases untouched. The decision comes after parliament Wednesday picked Suga, Japan’s longtime chief cabinet secretary, to succeed Shinzo Abe. Suga says he plans to continue his old boss’s economic policies, which include support for aggressive BOJ easing.

Bank of Japan to Maintain Easing as Suga Takes Japan’s Top Job

“The BOJ doesn’t need to move now,” said Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management. “The yen is stable and Suga has indicated that the BOJ should be doing what it has been doing.”

With financial markets relatively stable and businesses able to get credit, BOJ officials see little need to take more policy action now, people familiar with the matter said this month. The BOJ is likely to consider upgrading its economic assessment amid signs of improvement following the economy’s worst contraction on record last quarter, the people said.

The BOJ usually releases its policy statement around noon, followed by Governor Haruhiko Kuroda’s press conference at 3:30 p.m. in Tokyo.

What Bloomberg’s Economist Says

“The urgency to step up stimulus has receded. A second wave of virus infections is abating, and that could reduce downward pressure on economic activity.”

Asia Economist Team

Click here to read more.

What to look for

  • Kuroda is likely to reiterate the BOJ’s commitment to easing after the yen strengthened close to a seven-week high against the dollar as Federal Reserve officials projected U.S. interest rates to stay near zero through 2023.
  • Any upgrade to the BOJ’s economic assessment will probably indicate that Japan’s slump has bottomed, without expressing optimism about the outlook, people familiar with the matter said. Officials continue to see conditions as severe, they said.
  • While Kuroda is likely to emphasize the desire to keep coordinating policy with the government under Suga’s leadership, investors will watch for any subtle shift in his tone. Abe hand-picked Kuroda to be governor in 2013 and the two worked closely for years.
  • Kuroda will probably defend the importance of the BOJ’s 2% price target because Suga’s campaign against high cell phone fees for consumers has been seen as sign that he’s less concerned about inflation than Abe was.
  • Investors will also be watching for any remarks from Kuroda about the health of Japan’s regional banks and their role in the economy. Suga earlier this month said the nation may have too many local lenders, triggering a surge in some bank shares on the expectation of mergers.

Policy Recap

  • The BOJ expects interest rates to remain at the current low level or even lower.
  • 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.
  • Will purchase Japanese government bonds as needed and without a limit, though the amount of purchases remains secondary to controlling interest rates.
  • A guideline to increase holdings of exchange-traded funds with an upper limit of 12 trillion yen ($113 billion) a year. Actual purchases vary from month to month, depending on market conditions.
  • Active buying of corporate bonds and commercial paper with an expanded upper limit on holdings totaling 20 trillion yen.

©2020 Bloomberg L.P.

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