By Kaori Kaneko
TOKYO - Economists are largely split on the Bank of Japan's next move, according to a Reuters poll, with a growing number saying the central bank would unwind stimulus as its next course of action.
While a narrow majority of analysts still expect the BOJ to ease further, the sharp rise in the opposing camp - tripling from a month earlier - comes even after the central bank gave its strongest signal to date at its end-October meeting that it may cut interest rates in the near future.
Signs of an easing in the U.S.-China trade war and a reversal of the yen's recent strengthening are prompting some economists to shift their forecasts.
"There are hopes for progress in the U.S.-China trade talks and the deterioration in the global economy has also relatively eased," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.
"The risk of excessive yen appreciation has also receded. There is no need for the BOJ to ease policy proactively."
The survey, taken Nov. 6-12, found that 23 of 41 economists, or 56%, expect the BOJ's next step will be further easing, down sharply from 85% in last month's poll.
By contrast, 18 economists, or 44%, believe unwinding stimulus will be the BOJ's next course of action, a dramatic jump from just six economists in the previous survey. All 18 said the BOJ's unwinding of stimulus would come in 2021 or later.
The central bank kept policy steady at its Oct. 30-31 review but tweaked its forward guidance to say it would maintain ultra-low rates or even cut them for as long as needed to gauge overseas risks.
Moreover, Governor Haruhiko Kuroda has long pledged to ease further without hesitation if momentum towards the BOJ's 2% inflation target is lost.
Although the bank maintains that momentum remains intact, core inflation running around 0.3% means the BOJ still has its work cut out, keeping expectations skewed towards the easing side for now.
"The BOJ clearly showed its bias for further easing by tweaking its forward guidance," said Kazuma Maeda, economist at Barclays Securities Japan.
"We believe the BOJ is still looking for the timing to cut its minus interest rate in the future."
Those who expect further easing forecast a wide range of timelines, including four saying said it could happen as early as December and seven saying not until at least 2021.
Asked what dollar/yen level would prompt the BOJ to ease further, about 67% of the economists said when the yen strengthened beyond 100 yen against the dollar.
The yen stood around 109.00 yen per dollar on Wednesday.
The economy is expected to shrink an annualised 2.5% in the current quarter, with consumer spending hit by an increase in the sales tax, but it will likely grow 0.7% this fiscal year to March, the poll found.
Economic growth is expected to slow to 0.4% in the following year.
The core consumer price index, which includes oil products but not fresh foods, will grow 0.7% this fiscal year and 0.6% next year, according to the poll.
Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Oct. 1, a move that is seen as critical for fixing the country's tattered finances.
Although the government has already taken steps to mitigate the impact on consumption, there are worries the higher levy could hit the economy.
Underscoring the pressure on growth, Prime Minister Shinzo Abe asked his cabinet last week to compile a package of stimulus measures and build infrastructure to cope with large natural disasters.
(Polling by Daniel Leussink in Tokyo and Shaloo Shrivastava in Bengaluru; Editing by Chris Gallagher)