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Bank of Japan in focus as weak data stir economy fears

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The Bank of Japan's latest meeting was in focus Wednesday as weak trade figures reignited concerns about the world's number three economy.

[TOKYO] The Bank of Japan's latest meeting was in focus Wednesday as weak trade figures reignited concerns about the world's number three economy.

Policymakers are set to release an unprecedented report card on their own monetary policy after wrapping up a two-day gathering later in the day, with some expecting the bank to also launch more stimulus measures to prop up lacklustre growth.

Fresh data Wednesday morning aggravated those concerns as Japan logged a surprise trade deficit with exports dropping again in August.

Japanese leaders have struggled to get a strong handle on the economy, which contracted in the last three months of 2015, before bouncing back in January-March with a 0.5 per cent rise on-quarter and then a 0.2 per cent expansion in April-June.

"In the current global situation, Japan cannot rely on exports for its economic recovery," said Yoshikiyo Shimamine, chief economist at Dai-ichi Life Research Institute.

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He added that the yen - which has rallied this year and hurt exporters - could strengthen more if the BOJ does not take action Wednesday.

Bank watchers think that the BOJ may try to kickstart the economy by expanding an already massive 80 trillion yen (S$1.07 trillion) annual asset-buying plan. But there are concerns that the bank is running out of government bonds that it can buy under the programme.

Other options include cutting interest rates deeper into negative territory.

Negative rates are meant to encourage lending to people and businesses by effectively charging banks to keep excess reserves in the BOJ's vaults. But commercial lenders have complained they are eating into their financial results.

There is also speculation that BOJ chief Haruhiko Kuroda will throw in the towel on a 2 per cent inflation target by scrapping a specific timeframe to achieve that ambitious goal.

Inflation is currently nowhere near that target - first announced in 2013 - and Mr Kuroda has been forced to push back the timeline for reaching it before.

More than three years on, Prime Minister Shinzo Abe's growth blitz - a mix of big government spending, monetary easing and promises to cut red tape - has largely failed to deliver on its goal of slaying deflation and revving up a once-booming economy.

Tokyo recently announced a whopping 28 trillion yen package aimed at kickstarting growth, after Britain's June vote to quit the European Union sent financial markets into a tailspin and sparked a rally in the yen, which is hurting corporate profits.

Earlier Wednesday, official data showed that Japan's exports were down 9.6 per cent from a year earlier as a strong yen clouds the country's trade picture.

That left a trade deficit of 18.7 billion yen, the first shortfall in three months and after markets had forecast a 200 billion yen surplus.

In August overall exports fell for the 11th consecutive month, with vehicle and steel shipments among the worst hit sectors.


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