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BOJ to maintain stimulus as supply disruption darkens export outlook By Reuters


© Reuters. FILE PHOTO: A man wearing a protective mask walks past the headquarters of the Bank of Japan amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS/Kim Kyung-Hoon/File Photo

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is set to maintain its massive stimulus next week, as supply bottlenecks caused by factory shutdowns in Asia weigh on an economy already wobbling from the hit to consumption from the pandemic.

Analysts believe that the rate review is happening ahead of the race for the leadership of the ruling party. This could shift administration’s attention away from its current position based upon Shinzo Abe’s “Abenomics” reflationist policies.

At the post-meeting briefing, Haruhikokuroda, BOJ Governor will be quizzed about his thoughts on the positions of candidates.

The BOJ will keep its target for short-term interest rates at -0.1%, while the 10-year yield is expected to be around 0%.

Sources tell Reuters that while the BOJ will not change its views on the economy’s recovery, it is likely to give a more negative outlook about exports and production as the Asian pandemic has forced Japanese factories to cut their production plans.

Mari Iwashita (chief market economist, Daiwa Securities) stated that the economy has stagnated in quarter three, which causes some delays in Japan’s recovery. She said that there is a chance that the BOJ will change its outlook on output, which may mean the economy could be weaker for the remainder of the year.

With the ruling party candidates agreeing to keep massive monetary support, it is unlikely that there will be any changes in the BOJ’s short-term policy. However, it may impact the long-term plan to reduce stimulus.

Taro Kono is the frontrunner and has warned that it may not be possible to stick with the BOJ’s 2% price goal. Fumiokishida (a strong candidate) has long called on the BOJ to implement an exit strategy for its massive stimulus.

Fumio Kishida, the winner of the election, is likely to be next premier. He or she may also have influence over Kuroda’s successors and deputies, whose terms expire in 2023.

Yasunari Ueno (chief market economist at Mizuho Securities) stated, “The BOJ is adjusting its extraordinary stimulation in multiple stages.” This includes slowing bond purchases and effectively stopping risky assets from being purchased.

His statement stated that “the choice of BOJ leadership is crucial in determining whether or not such fine-tuning shall continue” and whether another stimulus round will ever be used.

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