TOKYO Dec 18 (Reuters) - The Bank of Japan on Friday extended its fund-aid scheme for firms hit by the coronavirus pandemic and pledged to begin an examination on more effective ways to achieve its 2% inflation target, as a renewed spike in infections threatened to undermine a fragile recovery.
As widely expected, the central bank kept monetary policy steady including its pledge to guide short-term interest rates at -0.1% and 10-year bond yields around zero.
Here’s how some Tokyo-based analysts have reacted to the probe on ways to hit the CPI target:
YASUNARI UENO, CHIEF MARKET ECONOMIST, MIZUHO SECURITIES:
“Today’s surprise was the announcement of its plan to review its monetary easing. That would be in line with recent moves by ECB and Fed to examine the course of monetary policy. The BOJ must have thought it would be left behind in the global monetary policy trend if it did not follow suit.”
“As the BOJ says, it won’t change the current policy framework but review components such as its ETF buying, bond purchases and its view on what constitutes an appropriate yield curve.”
“It may lead to a modification in its ETF purchases ... A rate hike is unlikely, while deepening negative interest rates is not on the cards either.”
DAIJU AOKI, JAPAN’S REGIONAL CHIEF INVESTMENT OFFICER, UBS WEALTH MANAGEMENT:
“The communication regarding forward guidance is important. Still, the BOJ will stick to its 2% target. I don’t expect a lowering of that target.”
“I think a term adjustment in the forward guidance is one thing. The other thing which could be more important is that the BOJ will focus more on stimulating corporate investment. Prime Minister Suga would like to increase investment for the digitalisation and in green areas. So the BOJ would like to focus more on the corporate financing rather than purchasing risk assets.”
ATSUSHI TAKEDA, CHIEF ECONOMIST, ITOCHU RESEARCH INSTITUTE:
“The BOJ’s decision to assess its monetary policy to achieve its 2% price target suggests that the central bank has no intention to change its price target.”
“Depending on the findings, the BOJ may need to change its monetary easing steps. But with its tools limited, what’s important is for the BOJ to show its determination to top up stimulus if needed.
MASAAKI KANNO, CHIEF ECONOMIST, SONY FINANCIAL HOLDINGS:
“More than four years have passed since the previous assessment in September 2016, and since then I thought for a long time that doing a review was necessary.”
“As this is an examination of measures, we don’t know its contents, but my impression is that this may be about the (BOJ’s) purchases of exchange traded funds.”
“The BOJ says it’s not making changes to its framework of quantitative and qualitative monetary easing with yield curve control, so it’s saying not to have hopes about that.”
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE:
“The key point of today’s decision was the BOJ’s plan to conduct a review of its monetary easing. With other central banks sticking to its 2% inflation target, the BOJ can’t abandon it because doing so could push up the yen.”
“The BOJ could examine how its negative rate policy is affecting prices. It may also change the definition of an appropriate shape of the yield curve.”
Japan’s economy rebounded in July-September from its worst postwar contraction in the second quarter, though a third wave of infections is dampening prospects for a strong revival.
The government announced this month a fresh $708 billion spending package to speed up the recovery, bringing the combined value of Japan’s pandemic-related spending to about $3 trillion.
Data released earlier Friday showed core consumer prices dropped at their fastest pace in a decade in November, stoking fears of a return to deflation and keeping policymakers under pressure to take stronger steps to prop up growth. (Reporting by Leika Kihara, Tetsushi Kajimoto, Daniel Leussink, Kaori Kaneko in Tokyo; editing by Shri Navaratnam)