Half of Economists Now Expect BOJ's Next Move to Be More Easing

(Bloomberg) -- About half of economists now expect the Bank of Japan’s next policy move to be monetary easing, including three who see it coming this week, according to a Bloomberg survey.

The other 45 of 48 economists surveyed said they expected the BOJ to leave its policy settings unchanged at a two-day meeting ending April 25.

The number of economists predicting further easing from the BOJ has risen sharply in recent months, from 14 percent in December to 48 percent this month, as economic growth has slowed and inflation sagged. In April 2018, more than 90 percent said the next move would be tightening.

Half of Economists Now Expect BOJ's Next Move to Be More Easing

Click here to read the survey

Japan’s key inflation gauge remains below 1 percent, less than halfway to the BOJ’s target, after six years of radical monetary stimulus. And other central banks, including the Federal Reserve, have recently taken dovish turns, bolstering expectations that the BOJ will follow suit.

Forward Guidance

One of the three economists who expect the BOJ to add easing this week said it would come in the form of a stronger commitment in its "forward guidance" to keep interest rates at extremely low levels. One also predicted the central bank would increase its buying of exchange-traded funds.

Overall, 31 percent said they expected the BOJ to revise its forward guidance by October.

The BOJ’s guidance currently states that it "intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time," taking into account the effects of a sales-tax hike set for October. As the date for the tax increase comes closer, some economists expect a change of wording.

The survey also found that 90 percent of economists expect the BOJ to cut at least one inflation forecast for coming years when it releases its quarterly outlook report with its policy statement. More than three quarters said it would also trim at least one growth forecast.

One focus in the outlook report will be the inflation forecast for the fiscal year starting in April 2021. The figure will be 1.6 percent, the lowest for a new year during Governor Haruhiko Kuroda’s six-year tenure, according to a median forecast of 39 economists.

Policy Recap

Key elements of the BOJ’s yield-curve control policy:

  • Interest rate of minus 0.1 percent on some commercial bank reserves.
  • Yield target of about 0 percent for 10-year Japanese government bonds.
  • Pledge to keep interest rates extremely low for an extended period.
  • Increase JGB holdings by about 80 trillion yen a year. (Actual pace is now far slower.)
  • Increase holdings of exchange-traded funds by 6 trillion yen a year.

©2019 Bloomberg L.P.