Economists see BOJ stimulus on hold, focus on yield-curve target

[TOKYO] The Bank of Japan (BOJ) has finished adding stimulus to the economy during the term of Governor Haruhiko Kuroda, according to almost all economists surveyed by Bloomberg. None of the 42 see any change coming at the next policy board meeting that ends Jan 31.

There's been a notable change from a poll before last month's gathering of the board, with just 12 per cent of analysts projecting more easing under MrKuroda, versus 36 per cent previously.

"The situation overseas is growing murkier, with the new Trump government and the UK leaving the EU, and the BOJ is keeping policy on hold for the moment to wait and see," Itochu Corp's Atsushi Takeda wrote in the survey, which was conducted Jan 18-23.

Forecasts for tapering of asset purchases and tightening of interest rates are also rising. Twenty-four economists forecast the BOJ will either cut its target for bond purchases, or drop it altogether. And 15 see the bank raising the target for 10-year bond yields from the current zero per cent at some point before Mr Kuroda steps down.

"As long as there isn't extreme yen weakness or yen strength, we should see core CPI hitting one per cent in the autumn, and there's a possibility the BOJ will lift the long-term interest rate target from its peg of zero," Daisuke Karakama at Mizuho Bank said.

Responses on the 10-year yield target were gathered before a separate Bloomberg report on Tuesday showed officials at the BOJ would rather be late than early in raising it. This is even if consumer price gains reach one per cent later this year, according to people familiar with the central bank's discussions.

The BOJ forecasts inflation will be 1.5 per cent in the fiscal year starting in April, still below its target of two per cent.

"I think that Governor Kuroda will still continue to place focus on leading the yen lower, and I think it'll be hard for them to raise the 10-year yield target," Totan Research President Izuru Kato said in the survey.

"However, if Japanese core CPI was to rise to one per cent or above, then the BOJ might raise the 10-year target, in a 'behind-the-curve' fashion," he said.

The board will consider any changes to policy and also provide updated forecasts for inflation and gross domestic product growth at the two-day meeting next week.

BLOOMBERG