MNI PREVIEW: BOJ Set To Stand Pat; GDP Higher But Risks Remain

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan will likely keep monetary policy unchanged

next week, with little sign that Japan's economy will deviate from its current

recovery path any time soon, although policy makers will remain vigilant to the

volatility of financial markets amid geopolitical risk and trade uncertainties.

     The central bank is also set to release its updated economic outlook, with

expectations that growth forecasts will be upgraded modestly.

     After a volatile start to the year for the financial markets, the BOJ will

continue to look at how the Nikkei stock index and the yen react to global

events and what the impact is on sentiment and whether that impacts the virtuous

cycle from income to spending.

     Just last week, BOJ Governor Haruhiko Kuroda said the central bank must eye

ongoing developments in emerging economies alongside other geopolitical risks,

noting that the global economy will continue to warrant close attention.

     With little sign of direct impact on the economy from early year market

volatility, the BOJ is expected to use the government's latest stimulus measures

to upgrade its growth forecasts from the currently seen +0.7% in FY2020 and

+1.0% in FY2021.

     Prime Minister Shinzo Abe's government has approved a Y13.2 trillion

spending blitz, with hopes for a near-doubling to Y26 trillion when local

government and private sector initiatives are added on.

     The Government expects the new measures to boost GDP in fiscal 2020 to 1.4%

from the 1.2% estimated in July, a forecast then already underpinned by the

upcoming supplementary budget.

     The BOJ is unlikely to sharply revise its inflation forecast higher from

1.3% in FY20 and 1.6% in FY21 as there is still little upside pressure from

corporate retail price hikes and the slowing output gap.

     --RECOVERY IN Q1 EYED

     The BOJ expects the economy to recover somewhat in Q1 after the weakness

seen in Q4, although the strength of the bounce will depend on how exports and

consumer spending perform.

     Although eyeing a recovery, economists at the bank don't expect a strong

bounce back in consumer spending this quarter as the slowdown following the

October sales tax hike wasn't as pronounced as the one seen following the 2014

hike.

     But even the recovery seen back in 2014 was less than expected by the BOJ,

pushing the board into a round of easing.

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

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

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