Prospects for More BoJ Stimulus Fading

The likelihood of more monetary stimulus in Japan is diminishing, according to a Reuters poll of economists who were largely split on the central bank’s next policy move, signaling a possible turning point in expectations for its easing cycle.

The latest Reuters survey of economists conducted Feb. 13-17 showed the outlook for growth and inflation for the world’s third-largest economy broadly in line with the January poll.

However, economists have pared back their expectations for the Bank of Japan to ease its already ultra-accommodative monetary policy, as the outlook for global growth improves and the yen’s outlook softens.

While the analysts don’t expect any change soon, 15 of those surveyed said it will pull back from its ultra-easy monetary policy when the BoJ does decide to alter its policy, while 17 said its next move will be to ease. That compares with 12 to 18 in the January poll and 10 to 21 in December.

The BoJ will likely stay the course this year, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, though he expects inflation to pick up and wages to improve in 2018.

“So the BoJ could raise the 10-year government bond yield target in the middle of next year,” he said. “But that would be too early to raise negative interest rates.”

The central bank has lowered short-term interest rates to minus 0.1% and bought billions of yen worth of bonds and other assets in a campaign to boost inflation and growth. In September, it adopted the unusual tactic of trying to keep the 10-year bond yield around 0%.

Some analysts expect the BoJ will likely cut the pace of its annual increase in Japanese government bond holdings from the current 80 trillion yen ($703.8 billion) sometime this year.

“The BoJ has shifted its policy targets to interests rates, so we expect the central bank will drop the target of the amount of an increase in JGB holdings eventually,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The poll showed the BoJ will maintain its interest rates at minus 0.1% imposed on some excess bank reserves at least until the second quarter of 2018.

Easing would mean lowering the short- and long-term rate targets, while tightening would mean raising them or cutting back on its massive asset-buying, a measure market participants call “tapering.”