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BOJ Expected to Cut Rates on or Before July Meeting


The Bank of Japan is expected to trim its negative interest rates further to -0.2 percent at July meeting, or before the said month, as consumer price inflation is still below the central bank’s target and the economy declines.

Analysts also lowered their expectations for core consumer prices for the fiscal year starting on April and the following year as low domestic demand and dropping energy costs dragging prices down.

As stated by a market analyst, “Downside risks to the economy have become apparent. In addition to oil price falls, when the BOJ judges the disappearing effects from yens weakness hampers price recovery, it will likely ease again.”

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Thirteen out of fourteen analysts think that the Bank of Japan will abate policy further at or before the July meeting. Three respondents selected the March, April, and June meetings for when the Bank of Japan ease policy, while chose the July meeting and one chose for the October 31 to November 1.

The Bank of Japan unexpectedly implemented a 0.1 percent charge in January on a portion of current account deposits that financial institutions have at the central bank.

However, the strategy similar to a European Central Bank program has so far done little to boost the Japanese yen lower. It climbed 7 percent against the dollar the week after the policy report.

On Thursday, the yen was not seen to drop to 120 against the dollar, the level it was trading at through most of 2015, until towards the end of this year. In the absence of a lower yen, which is considered good for Japan’s export economy and makes imports more expensive, analysts slashed their estimates for the core consumer price index.

In fiscal 2017, core consumer prices index is forecasted to soar 1.0 percent excluding the impact from a planned sales tax surge in April that year, plunging from 1.2 percent estimate in February.

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According to an economist, “Consumer spending has been weaker than previously expected, which will make it difficult for corporations to raise prices. The BOJs own measure of CPI is also showing signs of slowing down.”

Bank of Japan’s new consumer price index, which does not include the effect of volatile energy and fresh food costs, jumped 1.1 percent in January against 1.3 percent in December.

The world’s third biggest economy was seen to rally 1.0 percent over for the next fiscal year, slumping from 1.2 percent forecasted last month.

Japan’s Prime Minister Shinzo Abe will be putting together a new advisory panel to debate the essential of need for a supplementary budget next fiscal year. The panel is anticipated to discuss about five times before the Group of Seven in May.

However, many analysts think that the government should not arrange an additional budget soon, and expected it would not do so.

An analyst noted, “The government compiles extra budgets around the year-end every year, so the impact is diminishing.”

Speculation is rising over whether the government could hold the planned 2017 sales tax hike since the economy might be too weak to absorb its impact.

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