The Bank of Japan’s (BoJ) next move will be to start phasing out its ultra-easy monetary policy, according to a majority of economists polled by Reuters in a dramatic turnaround of expectations from just two months ago.
The BoJ will signal a move away from its accommodative policy by raising the 10-year government bond yield target, which it currently wants to keep at around zero, a majority of economists in the latest poll said.
Views have changed amid growing expectations for inflation in Japan, a rosier outlook on the global economy and more stable oil prices.
Also, mounting expectations of interest rate hikes by the US Federal Reserve have buoyed the dollar against the yen, making Japan’s export sector more competitive and reducing the need for further stimulus by the BoJ.
“Core consumer prices could rise to around 1 percent in August at the earliest, or in September to October. And the outlook for the economy is positive. In this circumstance, the BoJ is expected to make an adjustment to its long-term yield target,” said Yuichiro Nagai, economist at Barclays Securities Japan.
“We project the BoJ will raise its long-term yield target in the July-September period. And in response to the supply-demand in the bond market, the BoJ is likely to trim its bond buying,” he said.
The BoJ is widely expected to keep policy unchanged at a meeting this week as it waits for more data to show a pick-up in inflation, according to a separate poll.
But 28 of 35 economists polled said they expect the central bank’s next move will be to start pulling back its stimulus steps. In January’s poll, only 12 of 30 economists said so, while last month they were split 15-17.
Ten analysts said the shift would begin in the latter half of this year, five expect it in the first half of 2018 and another five project it would be in the latter half of next year, the March 6-13 poll showed.
Eight analysts forecast the central bank would do so in 2019 or later.
Asked what steps the BoJ would take if it decides to start exiting from its stimulus policy, 25 analysts said it would first raise the 10-year government bond yield target.
Five said it would raise its minus 0.1 percent interest rate on some excess bank reserves. This question allowed multiple answers. However, if the yen spikes, the central bank may ease again.
“In case of sudden sharp rises in the yen, which could damage Japan’s economy and prices, the BoJ could take easing steps,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Economists predicted that the world’s third-largest economy would grow 1.2 percent in the fiscal year starting in April and 1.0 percent in fiscal 2018, in line with the February survey.
Core consumer prices, which include oil products but excludes volatile fresh food prices, will rise 0.8 percent and 1.0 percent respectively, unchanged from the previous survey and still only half-way to the BoJ’s 2 percent inflation goal.
The latest official data showed core Consumer Price Index (CPI) rose 0.1 percent in January from a year ago, the first increase since December 2015.
All but one economist polled predicted wage increases at the annual spring negotiations will rise at the same pace as last year or lower.

Source: Arab News