July 14, 2015 / 9:04 PM / 2 years ago

BOJ may trim growth forecast, debate risks from China

TOKYO (Reuters) - The Bank of Japan may slightly trim its economic growth forecast on Wednesday and debate risks that cloud the prospect for hitting its ambitious inflation target, including from sluggish shipments to China and stubbornly weak household spending.

A man walks past the Bank of Japan (BOJ) building in Tokyo, June 24, 2015. REUTERS/Toru Hanai

With Chinese stock markets showing signs of stabilizing after a month-long rout and Greece clinching a last-minute conditional bailout, however, the central bank looks set to stick to its upbeat price forecasts and hold off on offering fresh stimulus, analysts say.

BOJ Governor Haruhiko Kuroda is likely to reiterate his optimism on the global outlook but may point to heightening uncertainty over the bank’s scenario that solid U.S. growth will pull emerging economies out of the doldrums next year.

“China is probably slowing more than the BOJ had expected, delaying a pick-up in other emerging Asian nations,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“Risks from Greece may have receded for now. But risks from sluggish Asian demand have not gone away.”

The BOJ is seen maintaining its pledge of expanding base money at an annual pace of 80 trillion yen ($648 billion) via aggressive asset purchases. It will also conduct a quarterly review of its long-term forecasts.

With the economy seen stalling in the second quarter on weak exports, the BOJ may cut by 0.1-0.2 percentage point its forecast of a 2.0 percent expansion in the current fiscal year to March 2016, say sources familiar with its thinking.

But the board is seen roughly maintaining its optimistic price forecasts, they say, signaling that no immediate expansion of stimulus was forthcoming.

Japan’s economy likely entered a soft patch on weak exports and household spending, though analysts expect growth to pick up in July-September as rising wages lift consumption.

While the BOJ expects robust U.S. demand to prop up growth in Japan’s Asian export markets, pessimists in the board fret that shipments may remain soft for longer than expected given China’s economic woes and lackluster global growth.

The International Monetary Fund trimmed its global growth forecast to take into account the impact of recent weakness in the United States.

The BOJ is confident a solid economic recovery will help accelerate inflation to 2 percent by around September next year. Many analysts doubt price growth will accelerate so quickly and some predict additional stimulus to come later this year.

Editing by Shri Navaratnam

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