Wed, Dec 21, 2016 page10

• Bank of Japan upgrades GDP outlook

  • Bloomberg
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  The Bank of Japan (BOJ) closed a tumultuous year for monetary policy with an upgrade to its assessment of the economy while keeping its yield-curve and asset-purchase programs unchanged.

  Following the board’s first policy meeting since US president-elect Donald Trump’s victory at the polls, the central bank forecast a moderate recovery trend to continue amid a pickup in exports, better business sentiment and resilience in private consumption.

  However, inflation expectations remain weak and risks to the outlook abound, ranging from developments in the Chinese and US economies to Brexit and geopolitical uncertainties.

  

  Bank of Japan Governor Haruhiko Kuroda gestures during a news conference in Tokyo on Nov. 1.

  Photo: Reuters

  Most analysts had already adopted the view that the BOJ would stand pat in coming months with its targets for short and long-term interest rates, even before Trump’s election victory sent the yen tumbling, easing any pressure for additional action to stoke inflation. After the shock of negative rates in January, a comprehensive policy review in the middle of the year and a new direction since September, a majority of economists surveyed by Bloomberg did not expect any additional easing before BOJ Governor Haruhiko Kuroda steps down in 2018.

  “In the spirit of the holiday season Kuroda delivered on cue with no surprises,” said Stephen Innes, a Singapore-based senior trader at foreign exchange firm Oanda Corp.

  While the upgrade of the economic assessment might further damp domestic easing expectations, “Trumpflation” is likely to see the US dollar rise further against the yen, Innes said.

  Speaking in a news conference later yesterday, Kuroda said it was too soon to discuss raising the long-term yield target or even the specifics of raising rates.

  He said the BOJ would not raise the target in response to hikes abroad.

  Kuroda said an appropriate yield curve had been achieved and current policy should be continued.

  “Differences in monetary policies can have some impact on currencies, but at this moment I don’t see the prospect of the yen becoming a problem by weakening excessively,” Kuroda said. “The currency is at a level similar to around February, so it’s not at a surprising level.”

  A weak yen generates inflationary pressures through higher import costs, while boosting corporate profits that could filter through to wage growth.

  The yen had gained about 13 percent this year before the US election, and has since tumbled about 10 percent.

  Separately to the BOJ, which would not provide numerical forecasts until its next meeting, Japanese Cabinet Office released upgrades for its estimates for the economy, and Minister of Finance Taro Aso confirmed fiscal spending plans.

  The estimates are that real GDP is to rise 1.5 percent in the next fiscal year starting April 1, versus a previous estimate of 1.2 percent; nominal growth is to increase to 2.5 percent, from previous estimate of 2.2 percent and overall consumer prices will advance 1.1 percent, from a previous estimate of 1.4 percent.

  The Japanese government’s initial budget for next year will be ￥97.5 trillion (US$825.66 billion), an increase of 0.8 percent on the same figure this year. Like this year, the government is expected to follow up with supplementary budgets next year.

  The BOJ kept its rate on some bank reserves at minus-0.1 percent and reiterated its pledge to keep the yield on the 10-year Japanese government bond at about 0 percent. Both rates are core elements of the new framework it announced in September.
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