BOJ likely to see mild growth, weak inflation

21 January, 2020 12:00 AM printer

TOKYO: The Bank of Japan started a two-day policy meeting Monday in which it is widely expected to maintain its ultraeasy monetary policy to support the country’s economy and upgrade its growth outlook for next fiscal year.

The central bank has been facing an uphill battle to lift inflation to its 2 percent target. In the outlook report, the bank will likely continue to forecast it will fall short of hitting the goal in the coming years, report agencies.

BOJ Governor Haruhiko Kuroda last week reiterated his commitment to take additional easing measures if momentum toward the 2 percent goal weakens, at a meeting of the bank’s branch managers.

In a report released after the meeting, the BOJ downgraded its assessments of three out of the country’s nine regional economies, citing slowing exports and production due to weak demand in overseas economies. Some regions reported weaker consumption following the Oct. 1 consumption tax hike to 10 percent from 8 percent.

But the BOJ is expected to keep interest rates unchanged and continue with its asset purchase program, standing pat on robust Tokyo stocks helped by a pause in the nearly two-year U.S.-China trade war.

It will also likely hold off from cutting rates further, given the recent stable yen against the dollar after the U.S. Federal Reserve last year indicated a pause in its rate reduction following three consecutive cuts. A narrower interest rate gap between the United States and Japan could trigger an unwanted surge in the yen.

On Japan’s economy, the BOJ is almost set to raise its growth forecast for fiscal 2020, which will start April 1, from 0.7 percent projected in October, sources familiar with the bank’s thinking said. The upgrading follows fiscal stimulus introduced by the government to ease the negative impact from the recent consumption tax hike.

On prices, however, the BOJ is likely to leave inflation forecasts below its target despite the tax hike. In October, it forecast core consumer prices would pick up 1.1 percent next fiscal year and 1.5 percent in fiscal 2021.