BoJ Preview: Assessment of downside risks is key

The Bank of Japan (BoJ) will hold a Monetary Policy Board meeting on 15-16 September. Although the BoJ should be mindful of some disappointing data inJuly (eg, industrial production), one month's data will likely not be enough for the central bank to change its optimist growth outlook.

No doubt one of the focal points of debate at the upcoming policy meeting will be the risk assessment and the degree to which rising uncertainties in overseas economies and financial conditions, centering upon China, hurt Japan's economy and inflation via trade, exchange rates, and commodity/equity prices.

What will likely be important for the BoJ when evaluating policy, however, is the size and sustainability of that impact. That will change depending on China's policy response, including the CNY exchange rates. At this point, it is believed the BoJ's likely stance will be to monitor the developments in financial markets, the policy response from China and their potential impact.

"Based on the above, we expect the BoJ to adhere to its current monetary policy framework, including the amounts and residual maturities of its bond purchases. Financial markets will try to get clues to the possibility of further easing by focusing on changes in the wording in the statement and/or comments by Governor Kuroda at the press conference after the meeting. The BoJ's assessment of downside risks to inflation arising from the yen's rebound and slower growth will draw especially close attention", says Bank of America.