Bank of Japan policymakers are in no mood to expand monetary stimulus this week, sources familiar with their thinking say, even as poor data challenges their presumption that economic recovery will boost inflation to its 2% target next year.
When BOJ Governor Haruhiko Kuroda last opened the monetary taps, in October, he was backed by a razor-thin majority on the bank’s board, and although subsequent changes have moved the board closer to his policy stance, a repeat looks even less likely now, Reuters quoted sources as saying.
With inflation and growth still in the doldrums despite the bank’s 80 trillion yen ($665 billion) per year asset buying measures, they said the board had grown increasingly concerned about their diminishing policy options and the downsides of the stimulus, such as draining liquidity from the government bond market.
Investors mostly expect the BOJ to stand pat at least until Oct. 30, when it updates its long-term economic and growth forecasts, so a surprise move might have an outsized impact on markets.
But that looks like one of the very few incentives for it to act now, with risks to the bank’s policy targets–such as weak global demand and China’s slowdown–mostly beyond its control, said the sources.
“There’s not much the BOJ can do to respond to overseas headwinds,” said one source. “What’s important is that domestic demand remains firm.”
The government also does not welcome additional monetary steps that might weaken the yen further and boost import costs.
Easing now would run counter to the government’s policy priorities, government officials say.
With an upper house election looming next year, Prime Minister Shinzo Abe’s administration has shifted its focus to helping low-income households and pensioners hit by the rising cost of living from a weak yen.
“A lot of people are getting suspicious on what benefits there are to additional monetary easing,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Politicians don’t want the yen to weaken too much.”
