BoJ likely to stay on hold for some time with easing bias

The Bank of Japan (BoJ) will hold its next monetary policy meeting on 6-7 August. The Bank of Japan(BoJ) is likely to maintain its current monetary easing framework, in light of three factors: (1) it  is believed BOJ  will maintain its upbeat assessment of the economy, (2) June CPI data indicate inflation continues to improve, and (3) the financial and currency markets remain stable overall. At BoJ governor Haruhiko Kuroda's post-meeting press conference we will be watching to what degree the BoJ perceives China and other overseas economies as posing a downside risk.Though it looks as if preliminary data, due out 17 August, will report a 1-2% annualized contraction in real GDP for Apr-Jun.

"We think, to some extent, this was already factored into the BoJ's growth outlook announced last month. A decline in Apr-Jun GDP would be in large part a snap-back to Jan-Mar's strong growth 3.9% annualized. If we average out Jan-Mar and Apr-Jun, we think growth remained slightly above the economy's potential growth rate" says BofA Merrill Lynch .

The key point will be the BoJ's outlook for Jul-Sep onward. Kuroda said at the press conference following the last monetary policy meeting that the factors behind the slowdown in growth in Apr-Jun, a decline in exports to the US and destocking in the auto sector, are likely to be temporary. Moreover, going by June industrial production and employment data released after the last monetary policy meeting, strong domestic corporate earnings are continuing to drive capex and jobs growth. The BoJ has not changed its overall view that the Japanese economy is on a recovery track, notes BofA Merrill Lynch .