Bank of Japan seen holding off more stimulus for now unless yen rises sharply: Reuters poll

October 11, 2016 1:21 AM EDT

Men walk toward the Bank of Japan (BOJ) building in Tokyo, Japan, September 21, 2016. REUTERS/Toru Hanai


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By Kaori Kaneko

TOKYO (Reuters) - The Bank of Japan is expected to wait until next year before easing policy further unless any sharp spikes in the yen undermine the economy significantly in the meantime, a Reuters poll found.

Last month the central bank switched the focus of its stimulus program to targeting market interest rates after years of massive asset buying failed to push up inflation.

About 70 percent of the analysts who answered an extra question said the BOJ would add more stimulus at its January meeting or later, while a handful of analysts predicted the central bank would ease further at its Oct. 30-Nov. 1 meeting when it releases its long-term growth and inflation outlook.

But several analysts said the central bank would keep to its current pace of stimulus, saying they had no specific forecast of when it would next take action.

"Our main scenario is that the BOJ will stand pat if the yen stays at the current level," said Hidenobu Tokuda, senior economist at Mizuho Research Institute.

"But there is a chance that the BOJ will lower interest rates further if the yen rises to around 95 yen per dollar in case the Federal Reserve decides not to raise interest rates this year."

The yen was trading at around 103.90 yen per dollar on Tuesday, after hitting a one-month low beyond 104 yen last week.

Tokuda said the BOJ faces less pressure to implement more stimulus after shifting its focus to interest rates and dropping the two-year timeframe to hit its 2 percent inflation target. Instead, it now wants to meet the target as early as possible.

The BOJ dropped its explicit target of increasing base money by an annual 80 trillion yen ($777.45 billion), in what some analysts said was a tacit admission its aggressive asset-buying was becoming unsustainable.

The Reuters poll predicted the BOJ would cut the -0.1 percent interest rate it levies on a small portion of commercial bank reserves to -0.2 percent in the third quarter next year, and would keep the 10-year Japanese government bond yield target at around zero percent throughout next year.

The poll was taken between Sept. 30-Oct. 10.

Some respondents predicted the BOJ would implement more easing at its next meeting.

"There is a possibility that the BOJ will lower its price projection for next fiscal year and the bank is expected to ease further by cutting the short-term interest rates," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But he added that comments by BOJ governor Haruhiko Kuroda at the weekend suggested there was not a significant chance of further easing by the central bank now.

Kuroda said the central bank will deepen negative interest rates or expand asset purchases if external shocks hit the economy but he also said he saw no immediate need to top up stimulus.

Asked what the intentions behind the BOJ's new policy framework were, about half the 31 analysts who answered said it was to secure the sustainability of monetary easing as the BOJ was seen reaching its JGB-buying limit soon, or to help banks which could be damaged by negative interest rates.

Over 30 percent of the analysts said the BOJ's new policy framework intended "to strengthen monetary easing". Around 20 percent said it was "to prepare for a future exit strategy".

Asked what measures the BOJ would likely take when it decides to ease again, 21 analysts opted for only cutting negative interest rates, while 12 said it would further lower negative interest rates and the 10-year JGB yield target.

This question allowed multiple answers.

Five respondents said the BOJ would increase its purchases of exchange-traded funds and real estate investment trusts, or commercial paper and corporate bonds.

(Reporting by Kaori Kaneko; Polling by Shaloo Shrivastava; Editing by Eric Meijer)



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