The Bank of Japan (BOJ) yesterday left its monetary stimulus untouched, while painting a gloomier picture of the economy this year as it signaled it does not see a quick recovery from the COVID-19 pandemic.
The BOJ kept its short-term interest rate at minus-0.1 percent, its 10-year yield target at about zero and left its asset purchases unchanged, in line with 96 percent of economists surveyed before the decision, who predicted that the central bank would not add to its stimulus at the meeting.
The bank released updated price and growth projections with median forecasts, having skipped pinpoint figures in April.
Photo: Bloomberg
The latest predictions point to a deeper slump this year, but suggest a slightly faster pickup in the following years.
Earlier this month, people familiar with the matter said that the bank’s board does not see a need to act further at this point, as financial markets are relatively calm and businesses are not facing severe funding problems.
Data have signaled that the recession likely bottomed out in the second quarter.
Even though Japan has faced a far less deadly COVID-19 outbreak than Europe and the US, a rise in Tokyo cases this month has continued to weigh on sentiment and inflation has fallen below zero.
The nation’s manufacturers are also heavily reliant on demand from markets where the pandemic is escalating.
The board said that it sees the economy shrinking 4.7 percent in the 12 months through March next year. In April, it saw a contraction of somewhere between 3 percent and 5 percent.
The return of a median projection suggests that the BOJ is now less uncertain about the path ahead.
On inflation, the bank forecast prices falling 0.5 percent this fiscal year, near the middle of the range given last quarter.
The BOJ said that it still sees price growth returning next fiscal year, but does not see inflation rising anywhere near its 2 percent target for the foreseeable future — another signal that BOJ Governor Haruhiko Kuroda and his colleagues are unlikely to raise interest rates before the governor’s term ends in April 2023.
“Barring a second wave of virus infections or substantial shock to financial markets, we expect the BOJ to stay on hold for the time being,” Bloomberg senior economist Yuki Masujima said.
The bank has now refrained from further policy action at two regular meetings, following a flurry of action during the early days of the pandemic, when it expanded purchases of corporate bonds and stock funds, pledged to buy as much government debt as needed to keep yields low, and introduced two lending programs for struggling companies.
More than 90 percent of economists surveyed by Bloomberg this month said that the BOJ has done enough, or more than enough, so far to support the economy, and 63 percent see the bank standing pat through this year, up from 38 percent last month.
The BOJ, along with the US Federal Reserve and European Central Bank, has emphasized its readiness to do more, and reiterated that the immediate focus is on securing financing for firms and market stability.
The BOJ last month estimated the size of its two special funding programs for struggling companies at ¥90 trillion (US$841 billion). The outstanding amount of loans under the programs was ¥22.6 trillion, it said last week.
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