The Bank of Japan will announce its interest rate decision on Thursday (October 28). The market generally expects the Bank of Japan to maintain huge stimulus measures and lower this year's inflation forecast, suggesting that the Bank of Japan has no intention of following up with other major central banks' policy routes that are ready to withdraw from the epidemic crisis period.
Although the rising price of raw materials has caused Japan's wholesale price increase to hit a 13-year high, consumer price increase is still stubbornly at near zero level, as weak domestic spending makes it difficult for companies to pass on the rise in costs to consumers.
As weak inflation and Japan's economic recovery remained fragile, the Bank of Japan will have enough reason to maintain its short-term interest rate target at negative 0.1% and its 10-year Treasury yield target at zero level when it ends its two-day policy meeting on Thursday. "Global, many central banks are turning to hike by hiking rates to cope with rising inflation, but it may be difficult for the Bank of Japan to turn hawkish," said Hiroshi Ugai, chief Japanese economic analyst at JPMorgan Securities. "Inflation driven by costs alone will not be able to raise inflation to its 2% target.
As exports and outputs are hit by parts shortages and supply restrictions, policy makers hope that lifting emergency restrictions on September 30 will drive households to increase spending and help achieve a sustained economic recovery.
BoJapan Review Committee member Asahi Noguchi said at a recent briefing, "I hope Japan will gradually see the suppressed demand released at the end of the year or early next year."
Focus on the outlook for the economy and price
The outside world is widely speculated that the Bank of Japan will adjust its outlook for the economy and price, which may affect future policies.
The outside consensus seems to be that the Bank of Japan will lower its outlook for economic and price after the economy is extremely weak in the summer and third quarters due to epidemic-related lockdown measures and supply disruptions. Until the end of September, emergency measures in most areas remained in effect. More than
Sources said that the Bank of Japan is expected to downgrade its forecast for economic growth and inflation for the fiscal year, but maintains its forecast that the economy will recover moderately.
The weak economy in the second and third quarters may prompt the Bank of Japan to lower its expectations for fiscal 2021. But the economic rebound may be stronger than current expectations. Recent data show that both output and prices are soaring, which could drive higher economic growth and bring inflation in line with the Bank of Japan's 2% target earlier than many expected.
Although news related to the Bank of Japan's policy statement on Thursday looks likely to be dovish, with economic growth and price outlook likely to be lowered, the economy and price rebound may be much earlier than the market thinks.
This could prompt the Bank of Japan to adjust its policy to be hawkish earlier than expected, and may even turn around and upgrade its outlook at the upcoming policy meeting.
yen outlook
If the above scenario occurs, the Bank of Japan's departure from ultra-loose policies may temporarily help limit the US dollar against the yen trend, perhaps limiting it to the critical 115.00 level.
market attention to whether Bank of Japan Governor Kuroda Haruhiko will issue any warning about the recent weakness of the yen. The weaker yen has boosted exports, but for retailers who are still struggling with the pandemic, it has pushed up the already high import costs.
USD versus the Japanese yen hit a four-year high of 114.70 on October 20, prompting the Japanese government to call for the "stable" trend in the exchange rate. Since then, the US dollar has been hovering around 113.50 yen against the Japanese Yen.
USD versus the yen is still below analysts' bottom line of 125 yen. But data from the Bank for International Settlements (BIS) shows that the actual effective exchange rate of for the yen fell about 4.7% this year, falling to 70.4 in September, highlighting the continuous decline in Japan's purchasing power.
Bloomberg Survey: When the election situation of the ruling party is difficult, the Bank of Japan is expected to maintain its policy unchanged
The Bank of Japan is expected to maintain its stimulus measures this week and postpone the forecast of economic recovery time. Japan's general election in a few days could undermine the new Prime Minister Kishida Fumio 's control over parliament.
Among the 49 economists surveyed by Bloomberg, 48 are expected to keep the negative interest rate and asset purchase plans unchanged on Thursday.About 47% of respondents said that if the ruling Liberal Democratic Party loses a simple majority in Sunday's election, Fumio Kishida will face pressure to provide larger economic aid.
Fumio Kishida was frustrated in the special election last weekend, suggesting that the support received by the Liberal Democratic Party is not strong. The party currently occupies 276 of Japan's 465 House seats, and the coalition party Komeito holds 29 seats.
Although the election is not expected to break the control of the ruling coalition, economists say the Liberal Democratic Party needs to maintain an absolute majority in order for Kishida Fumio to declare a great victory. Analysts say that insufficient seats will put him more pressure on him to deploy a larger fiscal spending plan than the generally expected 30 trillion yen ($264 billion).
Kishida Fumio's ex-official Suka Yoshihide stepped down after about a year in power, which has caused concern that Japan may return to an era when the prime minister changes like a revolving lantern.
But for now, nearly three-quarters of economists interviewed said they believe Kishida Fumio's rule will last more than 12 months. This means the new prime minister may need to elect a successor to Bank of Japan Governor Haruhiko Kuroda, whose term will expire in one and a half years.
In the quarterly forecast that the Bank of Japan is also scheduled to release on Thursday, economists expect the Bank of Japan to delay its forecast for the recovery time of Japan again. Following the summer epidemic backlash and supply chains are blocked, most analysts expect the Bank of Japan to lower its forecast for economic growth this fiscal year and raise its forecast for next year.
About two-thirds of economists say they do not expect the Bank of Japan's policies to be adjusted due to the new government.
This article is from Huitong.com
