Why more monetary easing is on the cards for Japan
Earlier today the Bank of Japan's policy board voted unanimously to leave the target of its financial asset-buying program at 80 trillion yen after raising it from 70 trillion about two weeks ago. The board also decided to leave its overnight interest rate at 0 to 0.1%, where it has been since October 2010.
The BoJ also downgraded its economic assessment for the second month in a row, saying that, “Japan's economic activity is levelling off”, while last month the bank said, “the pick-up in economic activity has come to a pause.”
Both Morgan Stanley and Credit Suisse are forecasting that Japan’s economy will contract in both Q3 and Q4 this year.
Speaking back in July, Deputy Governor of the BoJ, Hirohide Yamaguchi, said “When the outlook turns out to be weaker than expected or the risk associated with it intensifies, the bank will not hesitate to implement additional monetary easing.”
The latest forecasts indicate that inflation in Japan will stay below the BoJ’s 1% target for the next two years, and it’s becoming increasingly clear that the central bank is prepared to try new ways to try to end more than a decade of deflation.