BOJ watchers see economic risks pushing back rate-hike prospects

[TOKYO] The Bank of Japan (BOJ) is more likely to wait until after next year's sales tax hike before taking action to tighten monetary policy, given increasing risks to the economic outlook and recent market turbulence, a growing number of economists say.

All 49 of those surveyed by Bloomberg expect the central bank to leave policy unchanged at its Dec 19-20 meeting, with 88 per cent of them forecasting the BOJ won't raise its long-term interest rate before the end of 2019 compared with 78 per cent in the previous poll.

Global stock markets have suffered sharp falls since early October as fears intensified over the US-China trade war, signs of weakness in the Chinese economy and a slowing of the global tech cycle.

Japan's economy already faces a large hurdle with the raising of the sales tax rate to 10 per cent from 8 per cent in October, and previous increases in the levy have caused the economy to shrink.

While prime minister Shinzo Abe's administration is determined to take more action this time to even out fluctuations in consumer demand stemming from the tax increase, 47 per cent of surveyed economists say it's too early to judge if this will help the central bank move forward with policy normalization. Some 33 per cent don't think the measures will help a move toward normalising policy.

About a third of respondents expect the BOJ to allow 10-year government bond yields to move by more than 20 basis points around its zero percent target by the end of 2019.

While expectations that oil and cheaper telephone charges will weaken inflation next year, just 6 per cent of economists predict additional stimulus measures in 2019.

Among additional stimulus measures, more economists thought the central bank would add to its buying of equity funds than thought it would expand its bond buying.

BLOOMBERG