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Economy

BOJ ranks expect global economy to climb out of 'triple lows'

Depressed growth, inflation and interest rates seen as things of the past in 2017

TOKYO -- Gaining momentum within the Bank of Japan is a view that the global economy hit bottom last year, poised to bid farewell to slow growth, low inflation and rock-bottom interest rates this year.

"The correction phase following [2008's] Lehman shock has ended," said a source close to the BOJ.

BOJ Gov. Haruhiko Kuroda also declared in a December speech that "the global economy is entering a new phase." Now more people within the central bank believe that the industrial slowdown and the soft trade and investment evident during the long wake of the financial crisis will ease up in 2017.

In October, the International Monetary Fund upgraded its global economic growth forecast for 2017 by 0.3 percentage point to 3.4%. Consumer prices in Japan, the U.S. and Europe are trending up compared to the previous year. Long-term interest rates, especially in America, are also moving in an upward direction. And the Organization for Economic Cooperation and Development upwardly revised its global economic outlook late in November.

Economists upgraded growth projections in the U.S. and elsewhere after Trump won the presidential election in early November. But "the global economy has been on track for recovery since the middle of last year," said a BOJ source. In this growth scenario, Trump's victory was seen as an engine of growth.

A survey of 39 economists in Japan taken in December reveals that nearly half expect the U.S. economic growth rate to rise three or four years down the road. They cited stepped-up infrastructure spending, corporate tax cuts and relaxed regulations as the drivers.

"[Trump's] military and diplomatic stances are uncertain, but it appears we can expect a sound approach to economic policies," said a BOJ official.

The question remains, however, whether Japan will join the rest of the world in escaping the "triple lows" suppressing growth, inflation and interest rates. The BOJ upgraded outlooks for three out of nine areas in Japan in its Regional Economic Report released Monday. Those assessments reportedly priced in the effects of the bull market and the weak yen, which are both benefiting from easing anxieties over overseas economies as well as prospects for Trump's policies.

Concerns do remain surrounding the incoming U.S. administration. But if the improved market conditions stay put, Japan's economic growth rate and consumer prices will be under upward pressure.

For domestic interest rates, odds are great that they will persist at ground level. The BOJ is expected to maintain its modified framework adopted last year, headlined by the negative rate policy and rate controls. The central bank also repeatedly pushed back the timeframe for achieving the 2% inflation target. Because consumer prices are still far off from that goal, the BOJ is looking to keep a lid on long-term interest rates for a while.

Meanwhile, the pace of U.S. policy rate increases and the state of emerging markets will determine the fate of the global economy. "As U.S. interest rates rise, it will be necessary to pay attention to  the effects of shifting fund flows on emerging economies," Osaka branch chief Atsushi Miyanoya warned Monday.

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