Ja­pan cen­tral bank to cut next fis­cal year's growth, price es­ti­mates

The Pak Banker - - COMPANIES/BOSS -

The Bank of Ja­pan (BoJ) is ex­pected to cut next fis­cal year's eco­nomic and price fore­casts at a quar­terly re­view in April, sources say, re­flect­ing grow­ing gloom in the bank af­ter its most re­cent stim­u­lus mea­sures fell on stony ground.

Down­grad­ing its fore­casts could heighten pres­sure for ad­di­tional eas­ing mea­sures, though there is wan­ing con­fi­dence that mon­e­tary pol­icy is pro­vid­ing an ef­fec­tive boost to the econ­omy.

The BoJ's de­ci­sion to adopt neg­a­tive in­ter­est rates in Jan­uary failed to boost stock prices or ar­rest an un­wel­come rise in the yen, and the econ­omy re­mains stag­nant de­spite nearly three years of its pump­ing be­tween 60 and 80 tril­lion yen ($530-700 bil­lion) an­nu­ally into the econ­omy. While many BoJ of­fi­cials re­main op­ti­mistic about do­mes­tic de­mand, some fret that global mar­ket tur­bu­lence and slug­gish emerg­ing mar­ket de­mand are tak­ing a heav­ier-than-ex­pected toll on ex­ports and fac­tory out­put.

To re­flect weak ex­ter­nal de­mand, the BoJ board mem­bers may cut their growth and price pro­jec­tions at a quar­terly re­view to be con­ducted at a crit­i­cal pol­icy meet- ing on April 27-28, sources fa­mil­iar with its think­ing said.

"Risks are clearly tilted to­ward the down­side both in terms of the econ­omy and prices," said one of the sources, a view echoed by two other of­fi­cials fa­mil­iar with the BoJ's think­ing. The BoJ is also con­duct­ing a re­view of in­ter­est rates next week, and its lan­guage on ex­ports, out­put and the over­all econ­omy may be less rosy than in Jan­uary, when it said the econ­omy con­tin­ued to re­cover mod­er­ately on a pick-up in ex­ports, the sources added.

Pes­simists in the BoJ warn that if mar­ket tur­bu­lence per­sists, the bank's base­line ex­pec­ta­tion of mod­er­ate eco­nomic re­cov­ery could come un­der threat. "Some in the BoJ may feel the econ­omy is mov­ing side­ways, rather than re­cov­er­ing," an­other source said. Un­der its fore­casts made in Jan­uary, the BOJ ex­pects the econ­omy to ex­pand 1.5 per­cent and core con­sumer in­fla­tion to hit 0.8 per­cent in the com­ing year be­gin­ning in April. Cen­tral bank pol­i­cy­mak­ers may cut the growth es­ti­mate closer to pri­vate fore­casts of around 1.3 per­cent, blam­ing the cut on slug­gish over­seas de­mand, the sources said. A rise in the yen, which is now around 115 to the dol­lar com­pared with 120 in Jan­uary, will also weigh on in­fla­tion by push­ing down the cost of im­ported goods and fuel, they said.

Ja­pan's econ­omy con­tracted in the fi­nal quar­ter of last year, and an­a­lysts ex­pect growth to have picked up only mod­estly in the cur­rent quar­ter.

With in­fla­tion stuck far below the BOJ's 2 per­cent tar­get, an­a­lysts polled by Reuters ex­pect the cen­tral bank to cut its neg­a­tive rates fur­ther to 0.2 per­cent at or be­fore its July meet­ing.

BoJ Gov­er­nor Haruhiko Kuroda, how­ever, con­tin­ues to sound an up­beat note and in­sisted on Mon­day that nega- tive rates would have a "very pow­er­ful" stim­u­lus ef­fect on the econ­omy by driv­ing down bor­row­ing costs and nudg­ing firms into boost­ing in­vest­ment. Many BoJ pol­i­cy­mak­ers are wary of ex­pand­ing stim­u­lus soon, with board mem­bers who dis­sented from the Jan­uary move say­ing the bank may have ex­hausted steps to spur in­fla­tion or in­vest­ment.

"Pri­vate-sec­tor in­ter­est rates are al­ready very low, so the (neg­a­tive rate) pol­icy won't nec­es­sar­ily lead to in­creases in cap­i­tal ex­pen­di­ture," BoJ board mem­ber and for­mer banker Koji Ishida said last month.

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