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MNI STATE OF PLAY: Evolving Risks, Data Vital For BOJ Oct Meet

MNI (Tokyo)

The baseline recovery scenario remains intact for Japan despite a near-term weaker outlook.

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Upcoming economic data and the evolving risks linked to Delta variants of the coronavirus are vital factors for the Bank of Japan to examine whether it can maintain a baseline recovery scenario at the October meeting.

BOJ Governor Haruhiko Kuroda on Wednesday, following the latest policy review, expressed confidence that economic recovery as a trend will stay intact with capex set to rise as production and exports recover. The BOJ board decided to maintain yield curve control policy and left its short-term policy interest rate at -0.1% and the long-term interest rate target at around zero percent, the policy statement showed.

The BOJ said on Wednesday that "exports and industrial production have continued to increase despite some exports and production having been affected by supply-side constraints." The previous view was that exports and industrial production have continued to increase "steadily."

But the BOJ maintained its baseline recovery scenario, saying the economy has picked up as a trend and is likely to rebound as the impact of Covid-19 wanes gradually.


Kuroda told reporters that the BOJ will assess data ahead of the October policy review and the medium-term economic and price outlook. Supply chain disruptions on industrial production and exports, and the impact of vaccinations will become clearer by then, he said, see: MNI INSIGHT: BOJ To Be Cautious In Withdrawing Covid Measures.

The BOJ is set to lower the median forecast for economic growth and inflation rate this fiscal year from +3.8 and +0.6% made in July, respectively, at the October 27-28 meeting in the wake of weaker economy and consumer price data.

But the bank has largely left its assessment on other economic components, such as private consumption, capital investment and corporate financing, unchanged.

Kuroda also downplayed concern over the impact of slowing economies in the U.S. and China on the global economy.

"There is a view that the Chinese economy (and the U.S. economy) is slowing," Kuroda told reporters. But the foundation of the economy is solid. I think we don't need to have the view that the economies in the U.S. and China will slow and overseas demand will fall." Kuroda also said that the BOJ is monitoring developments of heavily indebted Chinese property developer China Evergrande Group.