seen to favor standing pat, post-Fed markets may sway
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[January 27, 2016]
By Leika Kihara
TOKYO (Reuters) - Bank of Japan
policymakers would prefer to hold back additional monetary easing at
their meeting on Friday, people familiar with the central bank's
thinking say, though global market volatility could yet force their
Even as slumping oil prices and soft consumption drag inflation
further away from their target, many BOJ officials hope to stand pat
as they believe the underlying inflation trend continues to improve,
with companies gradually raising prices and the economy recovering
Policymakers are wary of using their diminishing options to counter
what they see as factors beyond the BOJ's control, such as volatile
financial markets and China's economic slowdown.
But the debate may swing in favor of easing if the BOJ sees the
fallout from the market rout as hard to ignore, or if the U.S.
Federal Reserve's message on the future pace of rate hikes triggers
a fresh round of market volatility, the sources said.
"I can see the BOJ come up with a good justification both to ease or
to not ease," one said.
"Risks to the outlook are on the rise. Whether they have heightened
enough to warrant immediate action is an open question," another
said, on condition of anonymity.
Given Governor Haruhiko Kuroda's upbeat tone on prospects for
achieving his 2 percent inflation target, many analysts expect the
BOJ to maintain its pledge to expand base money at an annual pace of
80 trillion yen ($677 billion).
Kuroda may try to keep alive expectations of future action by
signaling that more stimulus could still be forthcoming, analysts
Some market participants, however, speculate the BOJ may ease as
plunging oil prices force it to push back the timing for hitting its
The BOJ is hardly complacent on the outlook. Inflation has ground to
a halt and many firms remain wary of raising wages.
Slumping Tokyo stocks may discourage firms from boosting capital
expenditure, threatening the positive momentum the BOJ is trying to
create with its money-printing drive.
Kuroda has warned that with inflation expectations "somewhat weak,"
he was carefully watching markets.
Pressure for easing may increase if the Fed, which meets a day
before the BOJ, offers a dovish tone on the policy outlook and
triggers a yen spike against the dollar, some analysts say.
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But opponents in the BOJ of immediate easing say it would take a
severe market upheaval to pull the trigger, given a lack of hard
data proving that the stock market rout has hit growth.
At least four of the nine board members are wary of topping up an
already massive asset-buying program that has had little success in
boosting inflation expectations.
The BOJ may prefer to save its ammunition until April as political
pressure for monetary stimulus may heighten ahead of nationwide
elections in July, some analysts say.
Much will depend on whether Kuroda, a former top Japanese currency
diplomat, thinks he can get the maximum market impact by expanding
stimulus now, they say.
"The BOJ could ease this week but it won't have much effect in
reversing the market tide," said Hideo Kumano, chief economist at
Dai-ichi Life Research Institute.
"The BOJ may have slipped into an endless battle with markets, and I
doubt it will ever claim victory."
(Reporting by Leika Kihara; Additional reporting by Sumio Ito and
Yoshifumi Takemoto; Editing by Eric Meijer)
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