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BOJ to defy global rate hike trend, cut price outlook -Breaking


© Reuters. FILE PHOTO – A man poses in front of Bank of Japan’s Tokyo headquarters, Japan. May 22, 2020. REUTERS/Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters), – Japan’s Bank of Japan plans to continue its enormous stimulus programme and to slash the inflation forecast for next year. It is indicating that it doesn’t intend to join other central banks in seeking to end their crisis-mode policies.

Although Japan has seen an increase in raw material prices, the wholesale inflation rate is now at a thirteen-year peak. Consumer inflation remains stable at zero due to weak domestic spending.

The BOJ will continue to target short-term rates of interest at -0.1%, while 10-year yields are at around 0%. This is despite the BOJ’s weak recovery and anemic inflation.

Sources tell Reuters that the BOJ has revised its quarterly projections and is now reducing this year’s inflation and growth estimates. However, it remains true to its prediction of a moderate recovery.

Globally central banks have begun to respond to rising inflation by raising rates. It’s difficult to imagine the BOJ becoming hawkish, partly because cost-push inflation will not support inflation at its 2% target. Hiroshi Ugai is chief Japan economist at JPMorgan Securities (NYSE:) Securities.

Markets focus on whether Haruhikokuroda, BOJ Governor will make any warning about the weakening yen. While this gives exports a boost, it also drives up import prices for retailers still feeling the effects of the pandemic.

Following a peak of 114.585yen Oct. 20, which was a 4-year-high, the dollar hovers around 113.50yen. On Oct. 20, it hit 114.555 yen.

Analysts see the 125 dollar/yen as Kuroda’s line in-the-sand. However, the real effective rate of the yen fell by 4.7% to 70.4 in September according to BIS data. This is a sign that Japan has slowed down its purchasing power.

Exports and production have been hit by parts shortages, supply limitations and other factors. Policymakers believe that Sept. 30’s lifting of the state of emergency bans on spending will help households increase their consumption and promote a sustainable economic recovery.

Asahi Noguchi from BOJ stated that her hope was for Japan to see high-demand demand gradually materialize by year-end, or beginning next year.

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