TOKYO: The Bank of Japan remains on course to expand its monetary stimulus in October, a Reuters poll showed, but a few analysts have pushed back their forecasts for more easing after recent upbeat data suggested the economy was gaining speed.
The poll highlights underlying doubts on inflation reaching the BOJ’s 2 percent goal in fiscal 2016 even as signs emerge of better growth prospects.
“The chances for the BOJ’s additional easing have declined given the fact the central bank upgraded its economic view,” said Yuichiro Nagai, economist at Barclays Securities Japan, referring to the central bank’s revised forecasts last month.
“But the possibility that its 2 percent inflation goal will be achieved during the first half of fiscal 2016 is low. So we can’t rule out additional BOJ easing.”
Twelve of 19 respondents expect the central bank to deliver more stimulus at its October 30 meeting and one picked the October 6-7 meeting, according to the poll.
Two of the remaining six expect expanded easing to occur in November and four are forecasting next year. The poll showed a notable shift from last month when three analysts predicted the BOJ to take action in July, compared with none in the latest survey.
That probably reflected surprisingly strong annualised 3.9 percent in the first quarter, thanks largely to a surge in capital investment. But growth is expected to slow to just one-third that rate in the current quarter, keeping inflation low, the poll showed.
The economy is expected to grow 1.7 percent this fiscal year which started in April and 1.8 percent next fiscal year.
Core consumer price inflation, which includes oil products but excludes fresh food prices, will probably rise only 0.4 percent year-on-year this fiscal year, and increase 1.3 percent next fiscal year, according to the poll.
Analysts say the stability of the currency is also key to policy success, a view that comes at a time when many central banks around the world are trying to engineer currency moves through monetary policy.
For many years, Japan, whose economy is heavily reliant on exports of high-quality manufactured goods, has struggled with a persistently strong yen.
Policymakers have welcomed the yen’s slide, first triggered by massive monetary stimulus and aggressive fiscal spending under Prime Minister Shinzo Abe, but which has become more pronounced since a broad dollar rally began last year.
While the yen is off its lows, it is still down about 20 percent against the dollar in the past year. It was last trading at 123.50 yen.
Some economists and politicians have now started to worry about possible negative consequences from the latest downdraft in the exchange rate since late May, which brought it to a 13-year low of 125.86 yen per dollar earlier this month.
“The important issue is the pace of the currency’s move not the level,” said Daiju Aoki, senior economist at UBS Securities Japan, adding that stability was preferable.
Five of 20 respondents said the optimal exchange rate for dollar/yen for the economy right now was between 120 yen and 124 yen. Six chose 125-129 yen, three said 130 yen or more and the rest picked below 119 yen as the ideal rate.
“If the range shifts to 125 yen and to 130 yen, that will boost import costs and then hurt private spending,” said Aoki.
