Japan raises economic growth forecast for next fiscal year

The Bank of Japan kept monetary policy stable on Thursday and updated its economic outlook for next fiscal year, but warned of escalating risks going forward as new coronavirus emergency measures threaten to derail a fragile recovery.

Governor of the Bank of Japan Haruhiko Kuroda said the board of directors also discussed a future review of the bank’s policy instruments, which is due to be published in March, but gave several hints as to what the outcome might be.

«Our review will not focus solely on addressing the side effects of our policies. We must make it more efficient and flexible», – said Kuroda during a press conference.

As expected, BOJ maintained its YCC target at -0.1% for short-term interest rates and around 0% for 10-year bond yields..

In fresh quarterly forecasts, the Bank of Japan raised its growth forecast for next fiscal year to 3.9% growth from 3.6% in hopes that a huge government spending package will cushion the blow from the pandemic..

The regulator maintains a gloomy view of future consumption, warning that service costs will remain under «strong downward pressure» due to new emergency measures taken this month.

«Japan’s economy is gaining momentum», – said in a report by the Bank of Japan, offering a slightly more detailed overview of the situation than last month, when the regulator said that growth «is accelerating».

While Kuroda reaffirmed the Bank of Japan’s readiness to further increase stimulus, he expressed hope that robust exports and the anticipated deployment of vaccines will improve the prospects for economic recovery..

«I don’t think the risk of Japan going back to deflation is great», – he said, making it clear that the Bank of Japan is currently offering sufficient incentive to dampen the blow from the COVID-19 pandemic..

Bank of Japan raises economic growth forecast for next fiscal year

Many analysts expected the Bank of Japan to refrain from criticism ahead of the release of its policy review in March, which aims to make the regulator’s tools sustainable as Japan prepares for a protracted fight against COVID-19..

Reuters sources said the Bank of Japan will discuss ways to reduce large-scale ETF purchases and loosen control over YCC to breathe life into markets that have been undergoing harsh intervention for years..

Kuroda said the Bank of Japan could consider such options in its review, but stressed that the decision would depend on the outcome of its careful study of the implications and costs of YCC..

He also clarified that any steps the Bank of Japan will take will not lead to the removal of incentives..

«It is too early to exit our massive monetary easing program at this time, Kuroda said. – Western economies have taken steps to ease monetary policy for ten years, and none of them are thinking about quitting now».

Bank of Japan raises economic growth forecast for next fiscal year

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