IMF Says No BOJ Action Needed if Inflation Expectations Anchored

Kochhar said there was a good chance the IMF would cut Japan’s economic growth forecasts for 2015 and 2016 in its next World Economic Outlook report as China’s slowdown and sluggish Asian demand weigh on exports.

“So far the recovery in Japan this year has been frankly disappointing and bumpy,” she said, adding that wage gains have been particularly weak despite a tightening labor market.

Japan’s economy contracted in April-June due to weak consumption and exports and analysts expect only a modest rebound in the current quarter, keeping the BOJ under pressure to further ease monetary policy.

The BOJ is likely to offer a bleaker view on overseas economies next week and may revise down its assessment on exports, sources say.

Some investors are betting the BOJ will ease at the end of October, when it is expected to lower its upbeat economic and price forecasts in a semi-annual review of its long-term projections.

But Kochhar said the BOJ does not need to respond to temporary weakness in the economy and instead should focus on inflation expectations – which have risen moderately – in deciding whether to deploy additional stimulus.

“The BOJ basically looks at inflation expectations and the output gap. Even if we were to lower our forecast, we see the output gap closing,” she said.

“As long as there’s not a very sharp decline in either, one could say (the BOJ is) on the right path.”

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