TOKYO : The Bank of Japan will start downscaling its massive monetary easing only in a year’s time, the majority of economists said in a Reuters poll, as speculation for further policy shifts abated after a surprise yield control tweak last month.
At the July 27-28 meeting, the BOJ modified its yield curve control (YCC) scheme and allowed interest rates to rise more flexibly, a measure officially targeted to sustain easing but seen by markets as a prelude to dismantling decades of stimulus.
Only one of 22 economists, or 5 per cent, expected the BOJ to start unwinding its ultra-easy policy this year, the Aug 15-23 poll found, significantly down from 50 per cent in a July survey.
Other respondents’ forecasts for the BOJ’s next action varied. Four said the BOJ will start unwinding in January-March 2024, five chose April-June, six selected July-September and another six opted for October-December.
Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute, said the BOJ may keep the status quo until next summer because the outlook for Japan’s wage trends in fiscal year 2024 will only come to light after spring.
Japanese policymakers have emphasized sustained wage hikes are the essential condition to achieve growth-driven inflation – and to normalise the BOJ’s ultra-loose easing.
A separate question showed 73 per cent of economists expecting the BOJ to end YCC next year, up from 50 per cent in July.
“The current YCC is an abstruse system … Governor (Kazuo) Ueda may be thinking yields can be more flexibly set by the market,” said Hiroshi Namioka, chief strategist and fund manager at T&D Asset Management. “It’ll be effectively dead or abolished in the near future.”
A question about when the BOJ ends its negative short-term interest rate policy showed 41 per cent of economists anticipating it in 2024, down from 54 per cent in a May poll. In the latest survey, 59 per cent of respondents chose “2025 or later”, versus 42 per cent in May.
Asked about at what yen level the Japanese government would intervene in the market to stem the currency’s decline, 67 per cent of economists said 150 per dollar would be the trigger, followed by 25 per cent who selected 155 per dollar.
The yen dropped to a nine-month-low of beyond 146 per dollar earlier this month on widening interest rate differentials between the U.S. and Japan, fuelling speculation for government yen-buying intervention. Japan last intervened in the forex market in October.
Elsewhere in the poll, economists’ median forecast for Japan’s July-September annualised gross domestic product (GDP) came in at a 1.2 per cent contraction, after economic growth jumped a rosy 6.0 per cent in April-June.
Economists raised their projection for Japan’s fiscal 2023 GDP growth to 1.8 per cent from 1.1 per cent in the previous poll. The fiscal 2024 growth forecast was revised slightly down to 0.9 per cent.
($1 = 145.1300 yen)
(For other stories from the Reuters global economic poll:)
Source: CNA
