Bank of Japan keeps policy on hold, upgrades economic view

TOKYO • The Bank of Japan (BOJ) left its aggressive monetary stimulus untouched yesterday, while upgrading its view of the pandemic-hit economy, one day after Mr Yoshihide Suga took over as Prime Minister pledging to continue his predecessor's stance on monetary and fiscal policy.

In a widely-expected move, the BOJ kept its key interest rate at -0.1 per cent and left its asset purchases unchanged, a bank statement said.

Mr Suga has indicated that he sees no need for any immediate changes in BOJ policies that have helped keep financial markets stable and get credit to companies amid Covid-19. The central bank upgraded its economic assessment for the first time since the coronavirus hit to reflect a bottoming in the country's slump.

The BOJ said the economy has started to pick up, with activity resuming gradually. It also said overseas economies were improving from a state of significant depression and this had helped turn production at home and exports towards a pickup.

Still, with the pandemic continuing to affect countries worldwide, the pace of improvement in Japan's economy was likely to be only moderate, the bank said.

"The BOJ has played its role in fighting the pandemic," said Tokai Tokyo Securities strategist Kazuhiko Sano before the decision. "Suga is coming in pledging continuity so there won't be much impact on monetary policy."

Analysts see gross domestic product rebounding an annualised 15.1 per cent this quarter, a big jump, but not enough to make up for the record contraction in the three months through June.

The BOJ decision comes just hours after the US Federal Reserve unveiled its latest policy guidance, committing to inflation that averages 2 per cent over time and forecasting near-zero rates to continue through 2023.

The yen was trading at 105.06 against the US dollar, little changed from before the decision.

While the Fed and European Central Bank look likely to adopt new easing measures within the year, the BOJ will hold off unless gaps between the policies cause the yen to gain sharply, said economist Kentaro Koyama at Deutsche Bank.

"The BOJ has already crafted its policy on the assumption of long-term low inflation and has minimal room for further easing action," Mr Koyama wrote in a report.

Markets have been reassured by Mr Suga's pledge to continue the policies of his old boss Shinzo Abe, and 95 per cent of economists say the new Prime Minister will not pressure the BOJ to make any changes.

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A version of this article appeared in the print edition of The Straits Times on September 18, 2020, with the headline 'Bank of Japan keeps policy on hold, upgrades economic view'. Print Edition | Subscribe