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TOKYO: The Bank of Japan is expected to maintain its massive stimulus programme on Thursday and signal its readiness to ramp up monetary support if growing risks such as the escalating U.S.-China trade war threaten the economy’s modest expansion.
Many BOJ policymakers are wary of using their dwindling policy ammunition any time soon as years of ultra-low interest rates strain financial institutions’ profits, say sources with knowledge of the central bank’s thinking.
But the darkening outlook is also forcing them to brace for the likelihood of another economic downturn and brainstorm ideas on how to respond, they say.
Adding to the uncertainty are heightening market expectations the U.S. Federal Reserve will start to cut interest rates to fend off the damage from the trade war with China.
While such rate cut expectations have kept a floor on stock prices so far, an actual cut by the Fed could push down the dollar and trigger an unwelcome yen spike that hurts Japan’s export-reliant economy, some analysts say.
“There may be no immediate need for action,” one of the sources said. “But with uncertainty over the outlook so high, the BOJ would need to think about how to respond if a shock hits the economy.”
At the two-day rate review ending on Thursday, the BOJ is widely expected to keep its short-term rate target at -0.1% and a pledge to guide the 10-year government bond yield around zero percent. The Fed meets this Tuesday and Wednesday.
The BOJ board is likely to maintain its view Japan’s economy continues to expand moderately as a trend, but debate whether its projection of a rebound in overseas growth later this year remains valid, the sources say.
At a post-meeting news conference, BOJ Governor Haruhiko Kuroda is likely reinforce his view the central bank is ready to deploy additional stimulus if the economy loses momentum to hit its 2% inflation target.
Japan’s economy expanded an annualised 2.1% in January-March but many analysts predict growth to slow in coming quarters as the U.S.-China trade row hurts global trade. A scheduled domestic sales tax hike in October may also cool consumption, they warn.
Many in the BOJ prefer to wait for more data, such as the central bank’s “tankan” quarterly business sentiment survey due July 1, to see how deeply the trade tensions could hurt domestic demand, the sources say.
“Domestic demand, including capital expenditure, is still firm. The key is to see whether this will remain the case,” a second source said.
Japan’s annual core consumer inflation hit 0.9% in April, remaining distant from the BOJ’s target, despite years of heavy money printing by the central bank.
Many analysts say the BOJ has very little tools left to fight the next recession, with its negative rate policy hurting financial institutions’ margins and long-term yields already hovering below zero. – Reuters
Ringgit opens lower against US dollar amidst heightened trade tension
KUALA LUMPUR: The ringgit opened lower against the US dollar today as investors stayed on the sidelines due to uncertainty surrounding the global economy and heightened trade tension involving the United States.
At 9am, the ringgit was at 4.1750/1780 against the greenback from 4.1650/1690 at Friday’s close.
MIDF Research in its economic brief said the heightened trade tension between US and China has weakened the US consumers’ sentiment with long-term inflation expectations dropped to the lowest on record as the outlook for the economy dimmed amid President Donald Trump’s stepped-up trade war.
The trade war has also caused China’s industrial output growth in May to be at the weakest level since the beginning of 2002 at 5% year-on-year.
“The pressure from US-China trade war which shows tariffs increased on China imports has affected major industrial production of China,“ it said.
Meanwhile, a dealer said the trade tension between the US and China was not the only reason causing the investors to be wary, but tariff hike involving a trade dispute between India and the United States has also inflicted additional damage to the global economy.
“The negative pressure on trade is not good for the global economy,“ he said.
Yesterday, India reportedly announced a retaliatory tariff on US goods such as apples, which will be hit with a 70% tariff, as well as almonds, lentils and several chemical products.
Meanwhile, the ringgit traded mostly higher against a basket of major currencies.
It appreciated against the Singapore dollar to 3.0448/0481 from 3.0457/0491 from Friday’s close, higher at 5.2572/2618 from 5.2691/2759 against the pound and improved versus the euro to 4.6835/6873 from 4.6940/6989.
The local currency also inched up against the yen at 3.8430/8461 from 3.8490/8534. — Bernama
KUALA LUMPUR, June 17 — The ringgit opened lower against the US dollar today as investors stayed on the sidelines due to uncertainty surrounding the global economy and heightened trade tension involving the United States. At 9am,…