The Bank of Japan may hold off on declaring the world’s third-largest economy has cemented its recovery at a policy review this week as it waits to see the fallout on activity from slowing growth and capital outflows in emerging nations. No change is expected in the massive monetary stimulus that the BOJ launched in April, which will see it nearly double the monetary base to 270 trillion yen (1.76 trillion pounds) by the end of 2014 to achieve its 2 percent inflation target.
Increasingly bright economic signs at home have been overshadowed by geopolitical risks in Syria and sharp outflows of capital from some emerging markets on expectations the U.S. Federal Reserve will soon start trimming its monetary stimulus. The central bank is thus expected to maintain its view the economy is “starting to recover moderately,” instead of offering a more upbeat assessment declaring that the recovery has already taken hold, according to sources familiar with its thinking.
The two-day board meeting will start on Wednesday.
“The global economic recovery remains fragile, so there’s huge uncertainty on how a sharp outflow of funds could affect financial markets and global growth,” BOJ board member Yoshihisa Morimoto said last week on the risk of a bigger capital withdrawal from emerging economies. The Indian rupee and Turkish lira have hit record lows against the dollar, the Indonesian rupiah has fallen to four-year lows, and other currencies have tumbled as investor sentiment has soured on emerging markets.
Exacerbating the move has been a rush to safe-haven currencies, such as the yen, as investors worry about the risk of United States launching air strikes on Syria.
Source: Bradley Associates