(Bloomberg) -- The Bank of Japan is likely to underscore the cautious tilt of global central banks by downgrading some of its economic assessments Friday. The focus is whether the gloomier international outlook prompts any hints of further monetary easing.
The BOJ will keep its yield-curve control program and asset purchases unchanged at the end of a two-day meeting, according to all 46 economists surveyed by Bloomberg. With signs of a weakening economy, the bank is likely to discuss lowering its assessment of exports, production and overseas economies, according to people familiar with the matter.
Even if the BOJ changes some economic assessments, it is unlikely to change its overall view that the economy is expanding moderately, the people said.
While increasing gloom has prompted the Federal Reserve to pause on interest-rate hikes and the European Central Bank has added to its monetary easing, Governor Haruhiko Kuroda is expected to avoiding signaling any change in policy could come soon, which would roil trading in the yen, bonds and stocks.
Most surveyed economists still see the BOJ sticking with its current policy before reining in its stimulus at some point in the future. But a growing minority of them are forecasting additional easing as the next policy step rather than tightening.
They cite growing concerns that Japan’s economy is weakening and the likelihood that inflation will head toward zero -- or even below -- later in the year, while a tax increase is set to further complicate matters.
The BOJ typically releases its policy statement around lunchtime, followed by a press briefing by Kuroda at 3:30 p.m. in Tokyo.
What to look for
- Japan’s Finance Minister Taro Aso this week indicated Japan could be a little bit flexible in its approach toward the 2 percent inflation target. Kuroda is likely to be asked whether there is any divergence with the government on the goal he sees as a global standard.
- Comments on the yen will warrant close attention since it is seen as a decisive factor that might push the BOJ to boost its stimulus, a view strengthened by Kuroda himself recently. While the yen has fallen from a January high of 104.87, economists warn the direction could quickly change on bad growth or trade news.
- Kuroda may also field questions on the extent to which BOJ policy contributed to a slashed profit forecast by Japan’s third-largest lender, Mizuho Financial Group, an indication that side effects may be starting to hurt mega banks not just local lenders.
“I expect the BOJ to hold off any additional easing until the probability of a recession gets high because they want to save their scarce policy resources,” said Hiroshi Ugai, chief Japan economist at JPMorgan Chase & Co (NYSE:JPM). and a former BOJ official.
What Bloomberg’s Economists Say
The signs of a weakening economy have appeared in recent data. “But at this point, it’s not bad enough to prompt much alarm, in our view. We think the BOJ is ready to ride out any mild turbulence within its current framework -- keeping its policy settings unchanged.”
--Yuki Masujima, Japan economistClick here to view the piece
Policy Recap
- Pledge to keep interest rates extremely low for an extended period of time.
- A rate of -0.1 percent on some reserves financial institutions keep at the central bank.
- Yield target of about zero percent for 10-year Japanese government bonds, with a trading range of about 0.2 percentage point on either side of the mark.
- A target of increasing JGB holdings by about 80 trillion yen a year is now secondary to controlling interest rates. The actual pace of purchases has fallen to less than half that rate.
- A guideline to increase holdings of exchange-traded funds by 6 trillion yen a year. Actual purchases vary widely from month to month, depending on market conditions.
