New Japan PM unlikely to set off BOJ shift, survey shows

Tokyo

A NEW Japanese prime minister due to be installed in the coming weeks is unlikely to change fiscal or other policies sufficiently to force the central bank to amend its monetary settings, a Bloomberg survey showed.

All but one of 47 economists expect the Bank of Japan (BOJ) will keep its yield-curve control and asset-purchase programmes unchanged at a two-day meeting ending Sept 22.

That's one week before the ruling Liberal Democratic Party holds a leadership ballot that basically determines the next prime minister.

While the BOJ remains independent, like counterparts across the world it would be cognisant of politicians' views.

Former Prime Minister Shinzo Abe is a good example: his goal of reviving inflation via massive easing was implemented by the central bank.

Still, there are few concrete expectations for the winner on Sept 29. Some 84 per cent of survey respondents predict there won't be any meaningful change in monetary policy as a result of the new political leadership, while the other 14 per cent say it's hard to tell.

On top of that, like much of the global central banking community, the BOJ is running up against the limits of what it can do.

"The leading role for Japan's economic policy has already shifted to fiscal policy from monetary easing," said Kentaro Koyama, chief economist at Deutsche Bank Group. "That will stay the same under a new leadership."

A key agenda item for the BOJ's gathering next week will be how governor Haruhiko Kuroda and his board assess the economic impact of a surge in Covid cases over summer.

Some board members have already indicated that the outbreak delayed a recovery.

Meantime, some of the nation's key economic hubs are set to remain under a state of emergency until the end of this month. No economists see the central bank signalling a scaling back of Covid-related measures in the final three months of the year, down from the previous 18 per cent expectation in a survey two months ago.

The BOJ is set to remain at the back of the pack among global peers. The European Central Bank decided to slow the pace of its pandemic-driven bond purchases at last week's meeting, and the Federal Reserve will be wrapping up its meeting hours after the BOJ. The US central bank is expected to begin tapering later this year.

Japan's inflation also remains low compared with US and Europe, a point acknowledged by Mr Kuroda in comments Wednesday evening. He said the bank stands ready to bolster stimulus should it be necessary.

The survey showed economists are evenly divided over whether Japan's key price indicator will fall for a second straight year in fiscal 2021. BLOOMBERG