BOJ set to keep massive stimulus, ready to act if pandemic causes more economic damage

BOJ set to keep massive stimulus, ready to act if pandemic causes more economic damage


No results matched your search

Economy47 minutes ago (Oct 28, 2020 05:05PM ET)

© Reuters. A man wearing a protective mask walks past the headquarters of Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is set to maintain its massive stimulus programme on Thursday and vow to take further action if the economic fallout from the coronavirus shock threatens a return to deflation.

But the rising cost of prolonged easing and a dearth of policy tools may mean there is not much the BOJ can do beyond rolling over its crisis-response package, or count on the government to unveil another spending package to re-ignite growth, analysts say.

Given the need to keep in place some restraints to economic activity to prevent the spread of the virus, the BOJ is not in a position now to push prices higher with further easing, said Naoya Oshikubo, senior economist at SuMi TRUST.

“As a result, the key policy drivers under Prime Minister (Yoshihide) Suga will be fiscal policy, deregulation and growth strategies, leaving monetary policy on the sidelines,” he said.

In a quarterly review of its projections, the BOJ is seen cutting this year’s growth and price forecasts as the pandemic hits domestic demand, sources told Reuters.

But the central bank is set to leave its yield targets unchanged at the two-day rate review concluding on Thursday, on the view the economy is headed for a moderate recovery.

The BOJ is also seen making no changes to a package of steps aimed at easing corporate funding strains, which has become its primary tool to deal with the pandemic-striken economy.

At his post-meeting briefing, BOJ Governor Haruhiko Kuroda is expected to reiterate the bank’s resolve to ease further if the pandemic derails a fragile recovery.

With the economic scars from COVID-19 seen taking years to heal, the BOJ is set to extend the March deadline for its crisis-response package. A decision is expected either in December or January.

For now, the board is likely to focus its debate on whether a recent rebound in exports and output can offset weaknesses in consumption and capital expenditure.

A pick-up in domestic demand is critical for lifting Japan’s economy from its biggest postwar slump, and avoid slipping back into deflation.

Analysts expect core consumer prices, which declined for two straight months in September, to keep dropping due partly the impact of a government discount campaign for domestic travel.

While many BOJ officials say they will look past such temporary factors, some worry the weakness in prices could stoke fears of deflation and prod households to put off spending.

After years of heavy money printing, however, the BOJ has few tools left to counter such risks. That puts the onus on the government, which is facing growing political calls to compile another spending package, analysts say.

Related Articles

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Leave a Reply

Your email address will not be published. Required fields are marked *