BOJ Decision-Day Guide: Watch for Weaker Economic Outlook

The Bank of Japan concludes a policy meeting Wednesday amid signs that the economy hit a soft patch in the second quarter, with deterioration in exports and production.

With most analysts seeing no change in the monetary stimulus program that’s already at record size, focus will be on updated quarterly BOJ economic projections, and Governor Haruhiko Kuroda’s press conference.

BOJ officials consider any weakness in the economy as temporary, and remain confident the longer-term trend toward improvement is intact, people familiar with the matter said earlier this month. JPMorgan Chase & Co. analysts are among those who calculate growth stalled last quarter.

Inflation is near zero, against a 2 percent target, and the pressure will be on Kuroda to explain why further easing isn’t necessary at this time. The governor has repeatedly underscored his confidence that underlying inflation trends are positive, so there’s no need to act. He also has flagged the need for government actions. Any shift in his language may be noteworthy.

The BOJ will update its April economic outlook when it announces its policy decision, usually early in the afternoon. Kuroda’s press conference is set for 3:30 p.m. in Tokyo.

Following are key points to watch:

* Policy decision

All but two of 35 economists surveyed by Bloomberg July 3-9 forecast that the BOJ will keep its pledge to increase the monetary base at an annual pace of 80 trillion yen ($648 billion).

The BOJ’s preferred gauge of inflation was at 0.1 percent in May and recent renewed weakness in oil prices could counter an acceleration in consumer price gains that Kuroda forecasts will occur later this year.

Twelve economists in the Bloomberg survey see the central bank expanding its asset-purchase program on Oct. 30.

* Outlook for inflation and growth

The BOJ will release its latest forecasts for inflation and growth for the three fiscal years running through March 2018. The projections, which are based on median estimates of the nine policy board members, offer clues on how the central bank sees prospects for achieving its objective of stable 2 percent inflation.

Economists led by Naohiko Baba at Goldman Sachs Group Inc. forecast the BOJ will trim its growth outlook for the year that started in April 2015 to 1.8 percent from 2 percent and retain its forecast for inflation of 0.8 percent.

A deeper cut in the inflation outlook for this fiscal year can’t be ruled out, according to Kazuhiko Ogata, an economist at Credit Agricole SA. He see a reduction to as low as 0.4 percent, citing reasons including a drop in Dubai oil prices that have fallen about 10 percent since the BOJ released its last outlook on April 30.

* BOJ’s risk assessment

Turbulence in stock prices in China -- Japan’s biggest trading partner -- is adding to external uncertainties. Slower growth in China could dent Japan’s recovery, said Itochu Corp. economist Atsushi Takeda.

At the same time, progress this week in Greece’s debt predicament could ease concerns for the BOJ.

The International Monetary Fund last week cut its 2015 growth forecast for Japan to 0.8 percent from 1 percent.

* New Board Member

The two-day policy meeting was the first for Yukitoshi Funo, a former executive at Toyota Motor Corp. who succeeded Yoshihisa Morimoto this month. Morimoto was among the four members who dissented in last October’s split 5-4 vote to expand the asset-purchase program.

Most economists see Funo voting along with Kuroda, helping secure a majority for the governor, according to the Bloomberg survey.

* Any surprises?

The governor has said the bank will “do whatever it can” to reach its inflation target.

Kuroda said in April that he expects inflation to reach the BOJ’s 2 percent target around the six months through September 2016. He said in May that he “won’t hesitate” to boost stimulus should achieving the target be at risk.

The BOJ will need to add to its monetary easing to reach the goal in that time frame, said Yuji Shimanaka at Mitsubishi UFJ Morgan Stanley Securities Co., one of the two economists who forecast a boost on Wednesday in the Bloomberg survey.

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