BOJ Likely to Cut Growth Forecast But Remain Bullish on Inflation

The Bank of Japan is likely to keep its bullish inflation outlook even as it cuts its economic growth forecast for this fiscal year in an October report, sources said, suggesting that the bank will not ease policy further at least until the end of 2014.

But central bankers are hardly complacent as they remain concerned about the outlook for exports, a soft spot in the economy that has failed to pick up despite the boost from a weak yen that gives Japanese goods a competitive advantage overseas.

Japan’s government kept its economic assessment unchanged at its monthly report on Tuesday, saying the world’s third largest economy is “expected to recover moderately” as the effect of a sales tax hike in April eases gradually.

But it turned slightly more cautious about factory output, which in June posted its biggest decline in more than three years due partly to weak overseas demand.

Japan’s economy contracted a hefty 6.8 percent in the second quarter due largely to the tax-hike pain, prompting many private-sector analysts to downgrade their growth forecasts for the year ending in March to around 0.5 percent, just half the 1.0 percent expansion estimated by the BOJ in July.

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza