BOJ be­gins 2-day meet­ing, no pol­icy change ex­pected

The Myanmar Times - Weekend - - International Business -

THE Bank of Ja­pan be­gan a two­day pol­icy meet­ing on Thurs­day, where it is ex­pected to main­tain ag­gres­sive mon­e­tary stim­u­lus with in­fla­tion still far be­low its 2 per­cent tar­get.

A de­ci­sion to stand pat would keep the cen­tral bank in stark con­trast to the U.S. Fed­eral Re­serve, which raised in­ter­est rates on Wed­nes­day and sig­naled two more hikes this year, and the Euro­pean Cen­tral Bank, which is ey­ing an end to its own as­set pur­chase pro­gram.

Con­di­tions in Ja­pan are also im­prov­ing on the back of ro­bust ex­ports and solid ap­petite for cap­i­tal ex­pen­di­ture, with real gross do­mes­tic prod­uct ex­pand­ing for eight straight quar­ters be­fore a slight con­trac­tion in the Jan­uary-march quar­ter, which econ­o­mists say was likely a tem­po­rary soft patch.

But tepid wage growth and ris­ing liv­ing costs have kept house­holds from loos­en­ing their purse strings, pre­vent­ing com­pa­nies from gain­ing the con­fi­dence to raise the prices of goods and ser­vices.

The BOJ sees 2 per­cent in­fla­tion as con­sis­tent with sta­ble eco­nomic growth. While in­creases in core con­sumer prices, which ex­clude fresh food and en­ergy prices be­cause of their volatil­ity, had been steadily gain­ing mo­men­tum through Fe­bru­ary, they slowed in March and again in April to a 0.7 per­cent rise from a year ear­lier.

Given the sit­u­a­tion, Gov­er­nor Haruhiko Kuroda and his fel­low board mem­bers are ex­pected to keep the BOJ’S cur­rent easy pol­icy of buy­ing up govern­ment bonds to push the bench­mark 10-year yield near zero per­cent and ap­ply­ing a neg­a­tive in­ter­est rate of mi­nus 0.1 per­cent on some funds that fi­nan­cial in­sti­tu­tions keep at the cen­tral bank.

Kuroda may re­it­er­ate at his post-meet­ing press con­fer­ence a pledge to main­tain ac­com­moda­tive pol­icy un­til the in­fla­tion goal is reached, though the re­moval of the de facto tar­get date of fis­cal 2019 from official com­mu­ni­ca­tions ear­lier this year sug­gests it is be­gin­ning to hold less sig­nif­i­cance within the BOJ.

Another rea­son Kuroda is un­likely to pull back stim­u­lus is po­lit­i­cal. Prime Min­is­ter Shinzo Abe, who ap­pointed Kuroda in 2013, is seek­ing a third con­sec­u­tive term as head of the rul­ing Lib­eral Demo­cratic Party in an internal elec­tion in Septem­ber. A pol­icy shift now would risk re­duc­ing sup­port for the pre­mier who is al­ready suf­fer­ing from a se­ries of crony­ism scan­dals.

Mean­while, the BOJ’S nine­mem­ber board is also likely to dis­cuss the harm­ful ef­fects of the stim­u­lus on the econ­omy, such as the hit be­ing dealt to the earn­ings of com­mer­cial banks. The topic of ris­ing ten­sions be­tween the United States and its largest trade part­ners may also be raised. – Kyodo

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