By Kaori Kaneko
TOKYO (Reuters) – The chances the Bank of Japan eases further have increased, according to over half of economists polled by Reuters after the central bank last month committed to expanding stimulus if a global slowdown derails the economic recovery here.
Should the Japanese currency strengthen to below 100 yen on the dollar – which would hurt the nation’s vital exporters – that could also prompt the central bank to loosen policy further, many analysts said. The yen firmed to a seven-month high this week.
Last month, the BOJ said it would ease policy “without hesitation” if overseas risks prolong and threaten the economy’s momentum to hit its price goal.
“The BOJ shifted to a preemptive easing stance,” said Hiroshi Ugai, chief economist at JPMorgan (NYSE:) Securities Japan.
“The BOJ is now willing to ease in response to risks of weakening momentum, rather than waiting for hard evidence indicating a loss of inflation momentum.”
Asked if chances of the central bank easing further had increased after its July policy meeting, 21 of 38 economists in the Aug. 2-13 poll answered “yes” and 17 said “no”.
Figures out Friday showed Japan’s economy expanded faster than expected, growing at an annual pace of 1.8% in the second quarter on healthy consumer spending and business investment even though exports struggled.
Still, the stronger yen and escalating U.S.-China trade war have many experts worried. Most economists polled – 30 of 38 – predicted the BOJ’s next move will be to ease.
“Share prices have fallen and yen has firmed on risk aversion recently due to the intensified U.S.-China trade friction. If that continues, the BOJ will have to ease,” said Yusuke Kaniwa, an economist at Hamagin Research Institute.
As for the timing of an easing move, 12 economists predicted it would happen as early as September and ten forecast October. Two expect in December, while three think sometime in the first half of 2020 and two predict in 2021 or later.
Asked what easing steps the BOJ would take, 24 said the central bank would tweak its forward guidance. Currently it promises to keep very low rates to spring 2020.
Fourteen economists forecast the BOJ would allow for greater fluctuation in the 10-year Japanese government bond yield.
Three predicted the bank would further lower its negative interest rates and two said it would both reduce its minus 0.1% interest rates and 10-year JGB yield target from around 0%.
As for how much of a yen spike might cause the BOJ to ease, 25 of 37 economists predicted a level below 100 yen to the dollar, while three said below 105 yen, four thought “beyond 103 yen” and two said “beyond 98 yen”.
Over the past six years, the central bank has been trying to spur inflation to 2% but economists said it would remain less than half that target for some time. Medians in the poll said it would rise to 0.7% this fiscal year through March 2020 and the following fiscal year.
As for their outlook for economic growth, the world’s third-largest economy is seen growing 0.5% this fiscal year after shrinking an annualized 2.3% in the fourth quarter because of October’s planned sales tax hike.
The economy will grow at the same pace in fiscal 2020, the poll showed.
(Polling and reporting by Kaori Kaneko; Additional polling by Khushboo Mittal in BENGALURU; Editing by Malcolm Foster & Shri Navaratnam)