TOKYO (Reuters) – The Bank of Japan is expected to keep monetary policy steady on Wednesday as weak growth and deflation risks remain primary concerns, in contrast to major counterparts eyeing a withdrawal of crisis-mode support for their economies.
The rate review comes ahead of a ruling party leadership race on Sept. 29 that may shift the administration’s focus away from the current stance based on former premier Shinzo Abe’s “Abenomics” reflationist policies, analysts say.
While the candidates agree on the need to maintain massive monetary support for now, they vary on the preferred long-term policy path, an area Governor Haruhiko Kuroda may be grilled on at his post-meeting briefing.
At the two-day meeting ending on Wednesday, the BOJ is set to maintain its short-term interest rate target at -0.1% and that for 10-year bond yields around 0%.
While it will stick to its view the economy will recover moderately, the BOJ is expected to warn of risks to the outlook from the pandemic such as supply chain disruptions caused by Asian factory shutdowns, sources have told Reuters.
The central bank will also likely remind markets of its resolve to keep monetary policy ultra-loose as sluggish consumption and temporary factors, such as cuts in cellphone charges, keep inflation grounded near zero for the time being.
“On the surface, the inflation rate in Japan is still low compared with that of United State and Europe,” Kuroda said in an online seminar last week. “We expect that the inflation rate will steadily go up and eventually reach 2% target, although not before 2023.”
Japan’s economy emerged from last year’s doldrums thanks to robust global demand, though extended state of emergency curbs to combat the COVID-19 pandemic have weighed on consumption.
Core consumer prices fell 0.2% in July from a year earlier to mark the 12th straight month of declines, as weak consumption discouraged firms from passing on rising raw material costs to households.
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