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Bank of Japan sees economic gloom lifting slightly

The Bank of Japan kept monetary policy steady today and slightly upgraded its view on the economy, suggesting that no immediate expansion of stimulus was needed to combat the coronavirus pandemic. 

Markets are focusing on what Bank of Japan Governor Haruhiko Kuroda will say at his post-meeting briefing on how the central bank could work with new Prime Minister Yoshihide Suga to support the economy with its dwindling policy tool-kit. 

As widely expected, the bank maintained its -0.1% short-term interest rate target and a pledge to cap 10-year government bond yields around zero. 

It also made no major tweaks to its asset-buying and lending programmes for easing corporate funding strains. 

“Japan’s economy remains in a severe state but has started to pick up as business activity gradually resumes,” the Bank of Japan said in a statement announcing its policy decision. 

That was slightly more upbeat than its view at the previous rate review in July, when it said the economy was an “extremely severe state.” 

Suga became Japan’s first new prime minister in nearly eight years yesterday, pledging to contain Covid-19 and push reforms after retaining about half of predecessor Shinzo Abe’s lineup in his cabinet. 

Analysts expect no major change to the relationship between the Bank of Japan and an administration led by Suga who, as Abe’s right-hand man, spearheaded the departing premier’s strategy to revive the economy with bold monetary and fiscal measures. 

Japan suffered its biggest economic slump on record in the second quarter as Covid-19 hit demand, reinforcing expectations inflation will remain well below the Bank of Japan’s 2% target for years. 

The Bank of Japan eased policy twice this year, mainly by ramping up asset buying and creating a lending scheme to channel money to ailing small firms to cushion the blow from the crisis.

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