BoJ kept monetary conditions unchanged… for now – UOB

Senior Economist at UOB Group Alvin Liew assessed the recent BoJ event.

Key Quotes

“The Bank of Japan (BOJ) kept its monetary policy stance, policy rate and forward guidance unchanged while at the same time maintained its assessment of the economy and revised higher the GDP growth forecasts but nudged the inflation projection lower yet again across the forecast period (FY 2019-FY2021).”

“The BOJ’s projected GDP growth rates were revised slightly higher across the forecast period in line with the improved assessment of external risks.”

“The BOJ was again less optimistic about prices and its CPI inflation point estimates and the forecast ranges were also adjusted lower for the forecast period with the point estimates revisions all lowered evenly by 0.1ppt. The effects of the consumption tax hike are still assumed to be “flushed out” by fiscal 2021 with CPI inflation now projected lower at 1.4% in fiscal year 2021 (from 1.5% previously), further away from the 2% target.”

“The BOJ’s latest inaction came on the back of a record budget for fiscal year 2020 and a fiscal 2019 supplementary budget bill while the BOJ also had a somewhat improved outlook for the risks from overseas impacting Japan’s economy. However, the threat from overseas remains persistent and the outlook for Japan’s price outlook is still dismal and that BOJ’s continued forward guidance without action will not be sufficient. With the economic data turning south even with the temporary relief from the fiscal stimulus, the BOJ will eventually need to act. The question is when and how will the BOJ ease its already very easy monetary policy. We expect the BOJ to renew easing monetary policy via deepening its negative policy call rate to - 0.2% possibly in 1Q 2020 i.e. the March MPM (from -0.1% presently). And potentially other measures will follow if the domestic economic situation turns down further in 2020”.

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