MNI POLICY: BOJ May Up Domestic, Global Economies Assessment

The Bank of Japan will likely revise higher its assessment of both the domestic and global economies at the September policy meeting, but maintain its cautious outlook as downside risks remain from the Covid-19 pandemic, MNI understands.

Policymakers will also consider upgrading their assessment on exports and industrial production following the July rebound after sharp declines in Q2.

In its most recent assessment, the BOJ said "Japan's economy has been in an extremely severe situation" and "exports and industrial production have declined substantially." As for overseas economies, the BOJ said they had been "depressed significantly."

Japan's gross domestic product for the second quarter fell 7.8% q/q, or an annualized -27.8%, but the economy is expected to recover in Q3 and Q4, albeit at a slower pace than first hoped

The BOJ is expected to maintain its view on private consumption, which has shown signs of recovery, although spending is still depressed across may parts of the hospitality sector. Consumer demand for goods remains solid but weak services, with officials at the bank still concerned further outbreaks of the virus will further damage spending.

The cautious view on medium- to long-term inflation expectations will likely be maintained and the Bank continues to guard against a drop of growth expectations and concerns over a worsening jobs market.