Majority of BOJ Watchers See No Extra Stimulus in October
Most economists expect the Bank of Japan to stand pat this week after continued signs of resilience in the economy and stability in markets cooled speculation that the central bank will ease in October.
Some 59% of 46 economists expect stimulus to remain unchanged at the end of a two-day meeting Thursday, though an increasing number think the bank will lower its negative interest rate in the near-term, according to a Bloomberg survey this month. The poll showed that more than 70% of analysts expect more easing by January next year, compared with less than two-thirds a month ago.
The partial agreement in U.S.-China trade talks and recent economic data showing domestic demand holding up appear to have contributed to the view that the central bank still has breathing space to hold off on extra easing this month. Economists also cited the diminished risk of a no-deal Brexit as helping pacify markets.
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Some 58% of respondents said the trade war and the global economy represented the biggest headache for the central bank, while 18% said it was weak inflation. By comparison, only 2% of them said yen strength was the central bank’s main problem now compared with 21% in the September survey. The yen was trading at 108.8 against the dollar on Monday afternoon, some distance from the 100 mark deemed by economists in the survey as the level needed to prompt a rate cut.
Still, expectations that the central bank will add to its stimulus are growing overall. Governor Haruhiko Kuroda’s repeated remarks flagging the need to lower short-term rates if the bank takes action have strengthened expectations that the BOJ will eventually lower its negative rate. Around 30% of all the economists surveyed expect that to happen in October.
If the BOJ refrains from action in October, it will likely want to dispel the view that it has simply run out of ammunition. That impression in combination with ongoing action by the Federal Reserve and the European Central Bank could reignite concerns of the yen jumping. Strengthening its promise to keep rates low or take action could help the BOJ show it is still poised to move if necessary.
Around two-thirds of economists expect the BOJ to change its guidance on policy in October, though they are divided over whether that by itself would constitute easing. The central bank currently pledges to keep rates extremely low until at least around spring 2020.
©2019 Bloomberg L.P.