The Opening Belle

The Bank of Japan on Thursday trimmed its economic and price forecasts for the current fiscal year but offered a more upbeat view on the recovery outlook, signalling that it has delivered enough stimulus for the time being.

The central bank, however, warned the outlook was highly uncertain as the pandemic weighs on service-sector spending and a resurgence of infections in Europe dampen prospects for a sustained global recovery.

As widely expected, the central bank kept monetary policy steady, including a -0.1% target for short-term interest rates and a pledge to guide long-term rates around 0%.

The BOJ also made no changes to a package of steps aimed at easing corporate funding strains, which has become its primary tool to deal with the pandemic-stricken economy.

“The BOJ turned more optimistic about the outlook for economic activity today and will probably keep policy settings unchanged over the coming months,” said Marcel Thieliant, senior Japan economist at Capital Economics.

BOJ Governor Haruhiko Kuroda will hold a news conference at 3:30 p.m. (0630GMT) to explain the decision.

In a quarterly report on the outlook, the BOJ trimmed its growth forecast for the current fiscal year ending March 2021 to a 5.5% contraction from a 4.7% slump projected in July, reflecting sluggish service spending during the summer.

It also downgraded this fiscal year’s core consumer price forecast to a 0.6% fall from a 0.5% drop seen in July.

However, the BOJ revised up its forecast for the next fiscal year beginning in April 2021 to a 3.6% increase, against a 3.3% expansion seen in July.

It also upgraded its assessment on exports and output to say they were “increasing.” That compared with the view in July, when it said they were falling sharply.

“Japan’s economy will likely improve as a trend as the impact of the coronavirus pandemic gradually subsides, though the pace of recovery will be moderate,” the report said.

“Risks to the economic and price outlook are skewed to the downside,” it said, adding the BOJ’s projections are based on the assumption that Japan can avert another lock-down triggered by a huge second wave of infections.

Japan’s economy is bottoming out after suffering its worst postwar slump in April-June, thanks in part to a rebound in exports and output. But weak consumption and capital spending is likely to keep any economic recovery modest, analysts say.

While Kuroda has repeatedly vowed to ramp up stimulus if needed, a dearth of policy ammunition may mean there is not much the BOJ can do beyond rolling over its crisis-response programme or hope the government will deliver another spending package.

Prime Minister Yoshihide Suga said on Thursday he would consider taking “budgetary steps” to support an economy hit by the pandemic, suggesting the chance of a third extra budget to fund new stimulus.

“If the government decides to roll out another package of steps to respond to the health crisis, the BOJ may respond by taking steps to aid corporate financing,” said Izuru Kato, chief economist at Totan Research.

French President Emmanuel Macron and German Chancellor Angela Merkel ordered their countries back into lockdown on Wednesday, as a massive second wave of coronavirus infections threatened to overwhelm Europe before the winter.

World stock markets went into a dive in response to the news that Europe’s biggest economies were imposing nationwide restrictions almost as severe as the ones that drove the global economy this year into its deepest recession in generations.

“The virus is circulating at a speed that not even the most pessimistic forecasts had anticipated,” Macron said in a televised address. “Like all our neighbours, we are submerged by the sudden acceleration of the virus.”

“We are all in the same position: overrun by a second wave which we know will be harder, more deadly than the first,” he said. “I have decided that we need to return to the lockdown which stopped the virus.”

Under the new French measures which come into force on Friday, people will be required to stay in their homes except to buy essential goods, seek medical attention, or exercise for up to one hour a day. They will be permitted to go to work if their employer deems it impossible for them to do the job from home. Schools will stay open.

As in the darkest days of spring, anyone leaving their home in France will now have to carry a document justifying being outside, which can be checked by police.

Germany will shut bars, restaurants and theatres from Nov. 2-30 under measures agreed between Merkel and heads of regional governments. Schools will stay open, and shops will be allowed to operate with strict limits on access.

“We need to take action now,” Merkel said. “Our health system can still cope with this challenge today, but at this speed of infections it will reach the limits of its capacity within weeks.”

Her finance minister, Olaf Scholz, posted on Twitter: “November will be a month of truth. The increasing numbers of infections are forcing us to take tough countermeasures in order to break the second wave.”

In an effort to blunt the economic impact, Germany will set aside up to 10 billion euros ($12 billion) to partly reimburse companies for lost sales. Italy has set aside more than 5 billion euros.

IF WE WAIT IT WILL BE TOO LATE

While leaders have been desperate to avoid the crippling cost of lockdowns, the new restrictions reflect alarm at the galloping pace of the pandemic from Spain, France and Germany to Russia, Poland and Bulgaria.

“If we wait until the intensive care units are full, it will be too late,” said German Health Minister Jens Spahn, whose country already has taken in patients from its neighbour the Netherlands, where hospitals have reached their limits.

The delivery of potential COVID-19 vaccines to European Union countries could begin in earnest in April, the head of the European Commission Ursula von der Leyen said on Wednesday.

“The big numbers of supplies are due to start in April,” von der Leyen told a news conference, adding that in the best-case scenario companies could deliver up to 50 million vaccines a month to the EU.

The first glimpse into China’s economic plans for the next five and 15 years will be unveiled Thursday when initial details are released on how the country will steer growth and develop industry in the face of an antagonistic external environment.

China’s Communist Party is expected to release two policy blueprints at the end of four days of closed-door meetings in Beijing: Their usual five-year plan and a longer strategy document that stretches until 2035.

Unlike the last five-year plan, which sought to achieve “medium-to-high growth” in order to build a “moderately prosperous society,” this plenum is expected to focus on the quality rather than the pace of growth, possibly even abandoning GDP targets. Investors and businesses are watching for signals on policies that may shape global demand.

“China realizes now it is vulnerable,” said Wang Huiyao, an adviser to China’s cabinet and founder of the Center for China and Globalization, referring to sanctions levied on Chinese companies. “So leaders have to be prepared for things like technology decoupling.”

The plan will be geared toward how to “handle aggressive foreign politics towards China and Chinese companies,” according to Iris Pang, Greater China chief economist at ING Bank NV. “Funds are going to flow into companies that can show their abilities to foster top-edge technologies.”

 💰 Tomorrow is the big one.

🔥 Q3 Earningsocalypse.

👀 Need to know who, when and what is expected? The awesome guys at @Newsquawk have you covered. pic.twitter.com/4m91xEl7ML— PiQ (@PriapusIQ) October 28, 2020