A man wearing a protective mask walks past the Bank of Japan headquarters amid the coronavirus disease (COVID-19) outbreak in Tokyo, Japan, May 22, 2020.REUTERS / Kim Kyung-Hoon

  • The BOJ keeps its interest rate targets unchanged
  • Exports, production partially affected by supply constraints – BOJ
  • Governor Kuroda to brief media on decision at 06:30 GMT

TOKYO, Sept. 22 (Reuters) – The Bank of Japan kept monetary policy stable on Wednesday, but offered a darker outlook on exports and production, raising expectations that the bank will maintain its massive stimulus measures even as its major counterparts are considering a withdrawal of support in crisis mode.

The gloom hanging over manufacturers, affected by Asian factory closures caused by the coronavirus pandemic, is adding to the woes of Japan’s fragile recovery, which has been hampered by weak consumption.

“Exports and factory output continue to increase, although they are partly affected by supply constraints,” the central bank said in a statement announcing the decision. This was a darker view than in July, when he said exports and production “continued to increase steadily”.

The BOJ maintained its assessment of the economy, saying it “is picking up as a trend, while remaining in serious condition due to the impact of the pandemic.”

As widely expected, the BOJ kept its short-term interest rate target at -0.1% and that of 10-year bonds around 0%.

“The BOJ likely believes the supply chain disruption and global chip shortages will be resolved sooner or later. But new risks are emerging from China’s slowdown,” said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“The deterioration in exports and production may be a prelude to a reduction in the overall economic assessment of the BOJ,” she said.

The rate revision came ahead of a September 29 leadership race that could distract the administration from the current stance based on the reflationary “Abenomics” policies of former Prime Minister Shinzo Abe, according to analysts. Read more

While the candidates agree on the need to maintain massive monetary support for the time being, they vary on the preferred long-term political path, a region governor, Haruhiko Kuroda, could be toasted during his post-meeting briefing.

Japan’s economy emerged from last year’s slump as strong global demand partially offset the blow to consumption from the extended state of emergency restrictions to tackle the pandemic.

But supply constraints, mainly for chips and parts produced in Southeast Asia, have forced some Japanese companies to cut production, raising concerns among policymakers that Japan’s recovery will be delayed.

Low inflation has also heightened expectations that the BOJ will lag behind other major central banks in reducing stimulus measures. Consumer staples prices fell 0.2% in July from a year ago to mark the 12th consecutive month of decline as weak consumption discouraged businesses from passing on higher raw material costs on households. Read more

Reporting by Leika Kihara, Tetsushi Kajimoto and Daniel Leussink; Editing by Sam Holmes

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