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MNI (London)
--BOJ Likely To Stand Pat At Jan Meet; Policy Options Limited
By Hiroshi Inoue
     TOKYO (MNI) - Despite increasing downside risks to the global economy, Bank
of Japan officials maintain the view that Japan's economy is expected to expand
moderately, but they will likely downgrade their outlook for inflation MNI
     BOJ officials are aware of bigger downside risks to the global economy,
partly from increased volatility in financial markets, but they see no need to
change their baseline recovery scenario as they haven't ascertained decisive
worsening of economic conditions through visible data since the December policy
     The board will likely stand pat on monetary policy at its two-day
policy-setting meeting ending on Jan. 23. 
     They will also review the medium-term real economic growth and inflation
outlook at the meeting, likely lowering their median inflation forecast in
fiscal 2019 and fiscal 2020 from the current +1.4% and +1.5% in the wake of weak
price data and the fall in crude oil prices.
     The BOJ are expected to repeat the view that the momentum toward achieving
the 2% price target is maintained but will consider how to deepen communication
with financial markets. Board members remain vigilant against downside risks to
Japan's economy amid volatile financial markets and the uncertain global
economic outlook.
     Volatile financial markets worldwide are darkening the global economic
outlook and growing downside risk to Japan's economy, increasing pressure on BOJ
officials to pre-emptively consider policy tools. BOJ officials overseeing
monetary policy will face the troublesome situation of how to handle further
easing, as the BOJ is running out of options to help the economy.
     Those officials maintain the view that the improvement of inflation rate
remains slow compared with an economic expansion and the tight labor market
     They are paying attention to the risk that the momentum toward hitting the
2% price target weakens to be caused by weaker consumer prices in or after April
when downward pressure from the drop in crude oil prices on consumer prices is
expected to appear.
     In 2015, inflation expectations had fallen in the wake of a combination of
the slowing Chinese economy and the drop in crude oil price.
     BOJ officials thinks that the magnitude of the impact this year is smaller
than that of 2015 but they are worried about the similar drop, or the
second-round effects of lower prices.
     BOJ economists see the development of capital investment as a key factor of
an economic recovery mechanism, judging current plans remain solid based on
economic data linked to capex.
     The BOJ regional economic report released Jan. 10 said all nine regions
reported their economies are either expanding or recovering, which may indicate
limited impact to date from a slowing global economy and the China-U.S. trade
     But the BOJ also said, "a gradually increasing number of firms are pointing
to some effects, such as a decline in orders."
     BOJ economists are focused on how the beginning of capital investment plans
in fiscal 2019 in the March Tankan business sentiment survey due out on April 1
deviates from the historical average level.
     There is also a concern that the market volatility, if continued, will
quickly worsen business and household sentiment, impeding their spending, which
in turn will endanger the virtuous cycle for a sustainable economic recovery.
--MNI London Bureau; tel: +44 203-586-2225; email:
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
MNI London Bureau | +44 203-865-3812 |