Global gloom may force Japan c.bank to temper its outlook
* BOJ seen keeping interest rate targets unchanged
* BOJ to cut views on exports, output on overseas gloom
* No big change expected to view economy expanding
* Governor Kuroda to brief media at 0630 GMT
By Leika Kihara
TOKYO, March 15 (Reuters) - The Bank of Japan is likely to
stand pat on monetary policy on Friday but temper its optimism
that robust exports and factory output will underpin growth, a
nod to heightened overseas risks that threaten to derail a
fragile economic recovery.
Factories across the globe slammed on the brakes last month
as demand was hit by the U.S.-China trade war, slowing global
growth and political uncertainty in Europe ahead of Britain's
departure from the European Union.
Such weak signs have forced major central banks to pause in
raising interest rates and cast doubt on the BOJ's
repeatedly-stated assessment that overseas economies "continue
to grow steadily".
Many in the BOJ expect Japan's economy to emerge from the
current soft patch in the second half of this year, when
Beijing's stimulus plans could lift Chinese demand and underpin
global growth, sources have told Reuters.
But there is uncertainty on how quickly global demand could
rebound, adding to woes for Japanese companies already feeling
the pinch from slowing Chinese demand, analysts say.
"The BOJ likely won't change its view that the economy is
sustaining momentum to achieve its price target. But it's
probably aware of heightening risks to the price outlook," said
Mari Iwashita, chief market economist at Daiwa Securities.
"If both the economy and prices prove to be weak, the BOJ
may be forced to concede that the momentum is diminishing and
ponder additional monetary easing," she said.
At a two-day rate review ending on Friday, the BOJ is widely
expected to maintain a pledge to guide short-term interest rates
at minus 0.1 percent and 10-year government bond yields around
While the BOJ is seen sticking to its assessment that
Japan's economy "continues to expand moderately," it may
slightly modify the language to reflect heightening external
risks, the sources say.
In a nod to the increased risks, the BOJ may also offer a
bleaker view on exports and output from its current assessment,
which says they are "increasing as a trend."
The BOJ faces a dilemma. Years of heavy money printing have
dried up market liquidity and hurt commercial banks' profits,
stoking concern over the rising risks of prolonged easing.
And yet, subdued inflation has left the BOJ well behind
other major central banks in dialling back crisis-mode policies,
leaving it with little ammunition to battle the next recession.
The BOJ's nine-member board is split between those who see
room to ramp up stimulus, and others who are more wary of the
rising cost of prolonged easing.
But the central bank's dwindling policy tool-kit means the
hurdle for additional easing remains high, analysts say.
The biggest worry among BOJ policymakers is that weakening
exports and output will hurt corporate sentiment, prompting
firms to delay capital expenditure and wage hikes.
Markets are thus focusing on the BOJ's "tankan" quarterly
business sentiment survey, due out on April 1, for clues on
whether further easing could be on the table, analysts say.
(Reporting by Leika Kihara; Editing by Sam Holmes)
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