Japan central bank to cut next fiscal year's growth, price estimates

Mon Mar 7, 2016 5:44am EST
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By Leika Kihara

TOKYO (Reuters) - The Bank of Japan (BOJ) is expected to cut next fiscal year's economic and price forecasts at a quarterly review in April, sources say, reflecting growing gloom in the bank after its most recent stimulus measures fell on stony ground.

Downgrading its forecasts could heighten pressure for additional easing measures, though there is waning confidence that monetary policy is providing an effective boost to the economy.

The BOJ's decision to adopt negative interest rates in January failed to boost stock prices or arrest an unwelcome rise in the yen, and the economy remains stagnant despite nearly three years of its pumping between 60 and 80 trillion yen ($530-700 billion) annually into the economy.

While many BOJ officials remain optimistic about domestic demand, some fret that global market turbulence and sluggish emerging market demand are taking a heavier-than-expected toll on exports and factory output.

To reflect weak external demand, BOJ board members may cut their growth and price projections at a quarterly review to be conducted at a critical policy meeting on April 27-28, sources familiar with its thinking said.

"Risks are clearly tilted toward the downside both in terms of the economy and prices," said one of the sources, a view echoed by two other officials familiar with the BOJ's thinking.

The BOJ is also conducting a review of interest rates next week, and its language on exports, output and the overall economy may be less rosy than in January, when it said the economy continued to recover moderately on a pick-up in exports, the sources added.

Pessimists in the BOJ warn that if market turbulence persists, the bank's baseline expectation of moderate economic recovery could come under threat.   Continued...

A businessman walks near the Bank of Japan (BOJ) headquarters in Tokyo, Japan,  February 15, 2016. REUTERS/Thomas Peter