BOJ could expand pandemic assistance programs to support fragile recovery
TOKYO (Reuters) – The Bank of Japan is set to keep its money taps wide open and may expand its pandemic relief programs next week to support a fragile economic recovery, raising expectations that it will be lagging behind its main counterparts in reducing crisis policies.
As the prolonged state of emergency to fight the coronavirus weighs on consumption, BOJ policymakers have become cautiously optimistic about the outlook as exports remain strong, according to sources close to his thinking.
A new emerging concern among policymakers is a surge in commodity prices ranging from petroleum to lumber to metals that pushed wholesale inflation to a 13-year high in May, pinching corporate profits still below. the shock of the pandemic.
But Japan has not seen the kind of inflationary pressure build up in some Western economies, as weak demand prevents companies from passing higher costs on to consumers.
Consumer staples prices fell 0.1% in April from a year earlier, marking the ninth consecutive month of decline and remaining far from the BOJ’s 2% target.
“Business-to-business prices are rising but the pass-through to consumer inflation is small,” one of the sources said. “Even if the economy recovers, low inflation will prevent the BOJ from reducing stimulus anytime soon.”
At its two-day policy meeting ending on June 18, the BOJ is expected to maintain its yield curve control (YCC) targets at -0.1% for short-term interest rates and 0% for 10-year bond yields.
It is also expected to reaffirm its commitment to buying assets such as bonds and exchange-traded funds (ETFs), although it has scaled back its huge purchases to make its long-term stimulus package more sustainable.
The board will also debate whether to extend the September deadline for a series of programs introduced last year to channel funds to cash-strapped businesses.
With service industries still suffering from the pandemic, the BOJ could decide on an extension as soon as next week’s rate review, the sources said.
But it is possible that the BOJ will postpone the decision until next month to examine its survey of “tankan” businesses, scheduled for July 1, or to make changes to the programs to better target small businesses in need of assistance. they declared.
The Japanese economy shrank 3.9% annualized in the first quarter and is expected to experience only a modest rebound, if any, in the current quarter after an extension of emergency coronavirus restrictions for Tokyo and other large regions.
While the BOJ offers a grim view of consumption next week, it will likely predict that stronger-than-expected exports and production will help the economy recover steadily in the second half of this year, the sources said.
Reporting by Leika Kihara, additional reporting by Takahiko Wada; Editing by Kim Coghill