BoJ could wipe out bets on July eas­ing

The Pak Banker - - COMPANIES/BOSS -

In­vestors bet­ting the Bank of Ja­pan will ease mon­e­tary pol­icy next week could be rid­ing for a fall, as the yen's re­cent weak­en­ing and a gov­ern­ment spend­ing pack­age take some pres­sure off the bank to step up its mas­sive stim­u­lus pro­gramme.

Mar­ket spec­u­la­tion of fur­ther eas­ing spiked last week after vis­it­ing for­mer Fed­eral Re­serve Chair­man Ben Ber­nanke told Prime Min­is­ter Shinzo Abe that there were still "var­i­ous tools avail­able" for mon­e­tary pol­icy to spur growth.

A poll showed 85 per­cent of an­a­lysts ex­pect the BOJ to ease on July 29, along­side the fis­cal spend­ing boost Abe is set to an­nounce this month. The BoJ has al­ready im­ple­mented neg­a­tive in­ter­est rates and is print­ing 80 tril­lion yen ($750 bil­lion) a year to stim­u­late in­fla­tion after decades of de­fla­tion and stag­nant growth, yet in­fla­tion­ary ex­pec­ta­tions ap­pear to be weak­en­ing.

Sources fa­mil­iar with the BoJ say it will down­grade its as­sess­ment that un­der­ly­ing trend in­fla­tion is "im­prov­ing steadily" next week.

But there is no con­sen­sus within the bank on whether that war­rants prompt ac­tion. While of­fi­cials do not rule out more stim­u­lus in July, some say a de­lay in hitting the bank's in­fla­tion tar­get alone shouldn't trig­ger im­me­di­ate eas­ing as a tight­en­ing job mar­ket will even­tu­ally push up wages and feed into prices.

"It's true un­der­ly­ing trend in­fla­tion lacks mo­men­tum. But what's im­por­tant is for there to be signs that in­fla­tion ex­pec­ta­tions will heighten in the fu­ture," said one of the sources. MAR­KET BACK­LASH The BOJ has stood pat since it adopted neg­a­tive in­ter­est rates in Jan­uary, with Gov­er­nor Haruhiko Kuroda blam­ing weak in­fla­tion on tem­po­rary fac­tors like oil price falls.

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