The central bank begins a two-day meeting on Wednesday and is poised to maintain its negative interest rate and asset purchase programs, according to 89% of economists surveyed by Bloomberg. About 10% of those polled expect a shift in forward guidance toward a tightening direction.
BOJ Governor Haruhiko Kuroda is in an awkward position given that his commitment to an easing stance has helped fuel the yen’s rapid weakening, adding to households and firms’ woes by exacerbating soaring energy prices.
At the same time, any tightening would cool an economy that’s yet to return to its pre-Covid level and hurt Kuroda’s credibility given inflation remains well short of the stable 2% he is seeking.
The BOJ’s communications task will be further complicated by the release of its quarterly outlook. The report will probably show forecast inflation revised up toward 2%, mainly due to the sharp rise in fuel prices, people familiar with the matter told Bloomberg earlier this month.
The bank will need to make clear the updated outlook doesn’t mean it is approaching its price stability target and that cost-push inflation is putting the economy at risk of a slowdown, the people said. Any figure beyond 1.2% would mean the BOJ is forecasting the fastest inflation in three decades, outside years when there were tax increases.
The new projections and policy statement are likely to be released in the early afternoon Thursday, followed by Kuroda’s press briefing at 3:30 p.m.
What Bloomberg Economics Says…
“The Bank of Japan is likely to keep policy unchanged, pushing back against market pressures that have tested its resolve to keep yields in its target band and its stomach for a weaker yen.”
— Yuki Masujima, economist
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What to look for
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Source: Economy - investing.com
