14th September 2020 – Ahead of the Bank of Japan (BoJ) monetary policy committee meeting on 16-17 September, Naoya Oshikubo, senior economist at SuMi TRUST, predicts continuity in Japanese economic and monetary policy despite the resignation of Prime Minster Shinzo Abe last month.
“We forecast the Bank of Japan (BoJ) will keep its monetary policy unchanged this month and the long term outlook is very much set on the continuation of easy money. As such, the Japanese central bank will maintain its ultra-accommodative monetary policy to counter a stronger yen. This aligns Japan with US monetary policy as the Federal Reserve announced at its extraordinary FOMC meeting on 27 August that it would tolerate inflation above 2% and commit to a zero interest rate policy over the long term.
“However, a surge in Covid-19 cases in Japan could alter this picture slightly. Should the number of cases accelerate as we go into the winter season the BoJ may opt to announce additional support for corporations. One potential measure would be to step up efforts to encourage banks to lend money to corporations by offering banks zero interest loans. The BoJ could do this by increasing the amounts offered under its ‘Special Funds-Supplying Operations’ (a scheme introduced in March) and by extending the duration of these loans.
“The financial markets recovered quickly after the announcement of Prime Minister Abe’s resignation last month (28 August). Although Abe played a huge role in shaping Japan’s economic strategy during the four terms he served, his resignation will not have a big impact on future monetary or fiscal policy. This is because Chief Cabinet Secretary Yoshihide Suga, a supporter of Abenomics, will succeed Abe, so the fundamentals of Abenomics will remain unchanged. In addition, given that BoJ Governor Kuroda’s tenure lasts until April 2023, the central bank’s monetary policy, which is a main pillar of Abenomics, should also continue in its current track.
“Given Yoshihide Suga will be the new prime minister we may find ourselves introduced to ‘Suganomics’ which, as mentioned, will unlikely be very different from Abenomics. With the development of a vaccine against Covid-19 in progress, the Japanese economy, while struggling, seems to be on a path to recovery. While the Nikkei 225 is awaiting new policies from the next prime minister, it should still aim for 24,000 by the end of this year.”