Two-thirds of economists see BOJ easing in October: poll

The Bank of Japan is laying the groundwork for deepening negative interest rates, analysts polled by Reuters said, with two-thirds of respondents expecting the central bank to loosen monetary policy this month.

Risks to the global economy have risen from a protracted Sino-US trade war and Brexit, among other factors, and Japan’s central bank is not alone in having to consider launching more stimulus to avert a sharp slowdown.

At its rate review last month, the BOJ said it would take a more thorough look at whether heightening overseas risks could derail Japan’s fragile economic recovery.

BOJ Governor Haruhiko Kuroda has said the central bank is edging closer to expanding stimulus as the trade war and slowing global demand cloud Japan’s economic outlook.

In a Reuters poll conducted between Oct. 2-14, 35 of 41 economists said the central bank’s next move would be to ease policy, while six predicted it would cut back on monetary support. Most economists responded to the survey before US President Donald Trump outlined the first phase of an agreement to end a trade war with China last week.

Of those who projected monetary easing, 21 said it would happen at its Oct. 30-31 meeting, five predicted action in December and another six said next year or later. The remainder did not give a time frame for when the BOJ would ease.

“Judging from the governor’s comments, the BOJ appears to be considering the option of cutting short-term interest rates while preventing the yield curve from flattening too much,” said Harumi Taguchi, principal economist at IHS Markit.

Under a policy dubbed yield curve control (YCC), the BOJ pledges to guide short-term rates at -0.1 percent and the 10-year government bond yield around 0 percent. It also buys government bonds and risky assets to flood the economy with cash.

Critics say cutting the -0.1 percent short-term rate target further would do more harm than good to the economy as it would strain financial institutions’ already narrowing profit margins and discourage them from boosting lending.