TOKYO (Reuters) – The Bank of Japan is expected to maintain its current quantitative and qualitative monetary easing and control the yield curve at its June 28-29 monetary policy meeting. A range of policy responses to the spread of the novel coronavirus is also expected to remain in place. Among the economic and price outlooks (Outlook Report) discussed at the meeting, there is a high probability that the growth rate and price outlook for fiscal 2020 will be revised downward. However, the correction is expected to be small, and the Bank of Japan is expected to continue to demonstrate its policy of doing everything possible to support corporate financing and maintain financial market stability.
Average loan balances at banks and credit unions rose 6.4 percent in September from a year earlier, BOJ data showed. Although the growth rate has slowed from the record high of 6.7% in the previous month, it is still at a high level. While the capital demand of large enterprises slowed down, the interest-free and unsecured loans of small and medium-sized enterprises continued to grow.
The financial system report released on the 22nd concluded that the Japanese financial system remained stable. Although the situation has been calm compared with March, the financial market has shown nervous movements from time to time, and the Bank of Japan plans to continue to monitor market trends.
Japan’s domestic economy is gradually picking up after bottoming out in the April-June quarter, and many at the BOJ believe the economy is proceeding as outlined in its July outlook report.
The Bank of Japan believes that the downward pressure on prices brought about by the government’s tourism demand stimulus plan “Go To Travel” is temporary, and is closely monitoring the basic trend of prices after excluding this impact. For now, the price cuts have not yet spread, and the risk of further declines is considered low given the underlying trend in prices. According to estimates by the Ministry of Internal Affairs and Communications, excluding the impact of the GoTo business, the consumer price index (excluding fresh food) in September was 0.0% compared with the same month last year.
While exports and production held firm, service consumption, which was soft in the summer amid rising infections, has been picking up since September thanks to GoTo businesses. However, some within the BOJ are concerned about the future of domestic demand, such as the sustainability of consumption and trends in capital investment.
In terms of overseas economy, China’s GDP in the third quarter increased by 4.9% year-on-year, which provided a boost to Japan’s exports, while the number of infections in Europe and the United States surged. In Spain, measures such as declaring a state of emergency are spreading, prioritizing preventing the spread of infection over economic activity.
In its outlook report, the Bank of Japan is expected to reiterate that downside risks outweigh the outlook for the economy and prices.
Takahiko Wada, Reika Kihara Editor: Hitoshi Ishida