Japan’s central bank is expected to cut its growth and price forecasts for the current fiscal year at next week’s rate review, sources familiar with its thinking said, as the coronavirus pandemic weighs on the economic recovery.
But any such downgrade is unlikely to trigger an immediate expansion of monetary stimulus, with the Bank of Japan expected to maintain its assumption that the world’s third-largest economy will post a moderate pick-up, the sources said.
“It’s somewhat weaker than three months ago,” one of the sources said of this fiscal year’s growth projections, a view echoed by two other sources.
The main reason for the downward revision in growth is the bigger-than-expected economic slump in April-June and soft consumption during the summer, the source said.
“Risks are skewed to the downside,” a second source said, adding that weak service-sector spending and prospects of deeper cuts in capital expenditure cloud the outlook.
In the most recent projection made in July, the BOJ expects the economy to contract 4.7% in the current fiscal year ending March 2021. That is less pessimistic than a 6.0% fall projected in this month’s Reuters poll.
The BOJ’s July forecasts were compiled before the release of data that showed Japan’s economy shrank an annualised 28.1% in April-June, its worst postwar slump.
The nine-member board is also seen slightly trimming its inflation forecast for the current fiscal year, due largely to the impact of a government campaign offering discounts for domestic travel, the sources said.
The BOJ’s current projection is for core consumer prices to fall 0.5% this fiscal year.
The central bank is widely expected to keep monetary policy steady at the rate review on Oct. 28-29, when it will also release the fresh quarterly growth and inflation projections.
The board is unlikely to make major changes to its growth and price forecasts for fiscal years ending March 2022 and 2023, the sources said.
The sources spoke on condition of anonymity due to the sensitivity of the matter.