Bank of Japan on prolonged hold

Weak activity data suggest that GDP may have contracted by 1.0% q/q in the fourth quarter and we still expect the economy to shrink next year rather than expand as most anticipate. However, with the global economy having turned a corner, firms’ capital spending plans holding up and the government announcing a large fiscal stimulus package, we reiterate our long-held view that the Bank of Japan won’t cut interest rates for the foreseeable future.