BOJ Resists Fed's Trade War and Cloudy Outlook

TOKYO (Reuters) – The Bank of Japan is expected to maintain its mbadive stimulus package on Thursday and be ready to step up monetary support if rising risks, such as the growing trade war between the US and China, threaten the country's financial crisis. modest expansion of the economy.

Many BoJ policymakers are reluctant to use their ammunition, which is declining rapidly, as years of extremely low interest rates weigh on the profits of financial institutions, informed sources said.

But the gloomy prospect also forces them to prepare for a new economic downturn and think about ideas on how to react, they say.

Uncertainty increases market expectations, and the US Federal Reserve will begin to cut interest rates to prevent damage from the trade war with China.

Although rate-cutting expectations have kept the floor on stock prices up to now, a real reduction by the Fed could bring down the dollar and cause an upsurge in the undesirable yen that would affect the US dollar. Japanese economy, which depends on exports, said some badysts.

"There might not be an immediate need for action," said one of the sources. "But with such great uncertainty about the prospects, the BOJ will have to think about how to react if a shock hits the economy."

When revising the two-day rates that will end on Thursday, the Bank of Japan should broadly maintain its short-term rate target at -0.1% and commit to maintaining the bond yield. State at 10 years around zero percent. The Fed meets Tuesday and Wednesday.

The BOJ's board will likely maintain its views on the Japanese economy, but wonders whether its forecast of a rebound in growth abroad later in the year will remain valid, sources said.

At a press conference held after the meeting, BOJ Governor Haruhiko Kuroda confirmed that the central bank was ready to implement additional stimulus measures if the economy slowed down to reach its inflation target of 2%.

The Japanese economy grew by 2.1% year-on-year in January-March, but many badysts expect growth to slow in the coming quarters, as trade between the United States and the United States China harms global trade. A planned increase in the national sales tax in October could also ease consumption, they warn.

Many BoJ members prefer to wait for more data, such as the central bank's quarterly "tankan" poll, scheduled for July 1, to see how trade tensions could hurt domestic demand, the sources said.

"Domestic demand, including capital spending, is still firm. The key is to see if this will remain the case, "said a second source.

Japanese consumer base annual inflation reached 0.9% in April, far from the BOJ's target, despite years of heavy printing by the central bank.

Many badysts believe that the BOJ has very few tools to fight the next recession, as its negative interest rate policy has the effect of hurting the margins of financial institutions and its long-term returns are already below zero. .