BoJ: A tight spot - BNPP

Ryutaro Kono, Chief Japan economist at BNP Paribas do not expect the Bank of Japan to make any policy changes during the current global recovery, leaving it few tools for the next recession.

Key Quotes

“Although the central bank could tighten policy if the yen were to weaken well beyond USDJPY 120, we consider that unlikely in the current global environment.”

“To tighten without a very weak yen would, in our view, require a shift in political demands on monetary policy. This cannot be ruled out, given the plunge in government approval ratings.”

“Another potential tightening scenario would see wage costs boosted by labour shortages, but we think many companies have buffers that would curb pass-through to consumer prices.”

“Japan’s primary response to the next recession is likely to be fiscal spending, in our view, effectively financed by the central bank.”