PREVIEW-BOJ to maintain policy, rosy outlook despite soft GDP, exports

swinging expectations over when the Fed will taper its
Sunday, 17 Nov 2013 | 11:44 PM ET

* Board meets Nov 20-21, decision expected Nov 21 0330-0500 GMT

* No policy action expected after massive April stimulus

* BOJ to maintain view economy recovering moderately

* Governor Kuroda to brief media at 0630 GMT Thursday

TOKYO, Nov 18 (Reuters) - The Bank of Japan is expected to maintain its ultra-loose monetary policy on Thursday and debate how weak exports and swinging expectations on when the U.S. Federal Reserve will cut its stimulus may affect Japan's economic recovery. Despite the slowdown in third-quarter growth, many board members expect the world's third-largest economy to keep recovering moderately as Japanese consumers boost spending in the run-up to April's increase in the national sales tax. But with exports lacking momentum and the outlook for overseas economies highly uncertain, the central bank is seen holding off on raising its assessment to say more decisively that the economy is on track for a sustained recovery. Pessimists in the nine-member board have warned that Japan may not see 2 percent inflation in the two-year timeframe pledged by the central bank, given headwinds from overseas and the difficulty of ending 15 years of grinding deflation. That will keep alive market speculation of further monetary stimulus by the BOJ sometime next year. "We won't see another slump in the economy at least for the rest of the current fiscal year (ending in March 2014) as consumers spend more ahead of the tax hike," said Koichi Haji, chief economist at NLI Research Institute in Tokyo. "But exports aren't picking up as fast as expected despite the boost from a weak yen," he said. "The BOJ may decide to ease again after next year's tax hike, if the downturn in household spending proves bigger than expected." For now, the central bank is widely expected to maintain the monetary framework it put in place in April, which aims to achieve 2 percent inflation in roughly two years by doubling base money through aggressive asset purchases.

EXPORT WORRIES PERSIST Japan's economic growth outpaced other G7 nations in the first half of 2013, thanks in part to Prime Minister Shinzo Abe's "Abenomics" stimulus policies that boosted household spending and weakened the yen, benefitting exports. While growth slowed in July-September, many analysts expect the economy to pick up in the current quarter as consumers spend now to beat the tax rise in April next year. The BOJ is thus expected to maintain its assessment that Japan's economy is "recovering moderately." The main concern for BOJ officials is soft exports, as emerging Asian economies reel from the market volatility caused bond-buying programme. The fiscal stand-off in Washington, which may be repeated early next year, clouds the outlook for the U.S. economy, a key market for Japanese cars. Underscoring such worries, external demand shaved third-quarter economic growth as exports fell well short of expectations in September. BOJ policymakers are likely to debate such risks when they meet on Wednesday and Thursday, as well as how the timing of the Fed's tapering could affect markets and the BOJ's economic projections. In its twice-yearly outlook report issued last month, the BOJ revised up its economic growth forecast and projected that Japan will make steady progress toward meeting the bank's 2 percent inflation goal in two years. But three board members dissented against the rosy projections, underscoring a rift over the bank's price target, which has been criticised by analysts as too ambitious. A fourth board member, Ryuzo Miyao, added to such voices of caution by warning last week that risks to Japan's economic and price outlook were tilted toward the downside mainly due to headwinds from overseas. A recent Reuters survey showed nearly 90 percent of Japanese firms expect consumer inflation to fall short of the BOJ's 2 percent goal in the next fiscal year. Markets will be on the lookout for what BOJ Governor Haruhiko Kuroda has to say in his post-meeting news conference about the murky overseas outlook and the rift in the board over the central bank's price forecasts.

(Editing by Richard Borsuk)