MNI PREVIEW: BOJ Set For July Hold; Still See H2 Recovery

--To Eye Transmission Effects Of Latest Policy Moves

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will stand pat on monetary policy at the

July meeting, taking stock of recent decisions that has facilitated funding for

companies of all sizes impacted by the spread of the Covid-19 virus.

     Policymakers believe the enhanced lending schemes are having the desired

transmission effect and will use the two-day meeting to review the medium-term

growth and inflation outlooks.

     Bank economists still sees the economy in a 'severe' situation after the

sharp Q2 slowdown, but believe Q2 saw the low point, with the recovery underway

in H2, albeit at a slower pace than initially expected as lingering health

concerns and social distance restrictions keep some consumers home.

     The high uncertainty as to how the virus will play out and impact the

global economy, with downside risks for Japan's exports and corporate capital

investment plans, stopped the BOJ agreeing on a single forecast back in April,

offering a forecast range instead.

     --RISKS

     Although many of those risks remain, the BOJ could follow the Federal

Reserve's lead and reintroduce and single median forecast in July. However, it

will be a matter of communication for the BOJ board - using a single point to

highlight an improved outlook or a forecast range to underline the risks

remaining.

     Certainly the BOJ's medium- to long-term growth expectations are unchanged,

underpinned by solid capital investment in software, automation and research and

development. The bank also expects the policy measures put in place by the

government and the BOJ will help protect jobs and support smaller companies

through Japan's summer months.

     But there is still a concern that the slower pace of recovery in the

service sector, particularly across the hospitality industries, will manifest in

a renewed cash crunch around the time of the BOJ's October meeting and Outlook

report.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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