* New blood at the BOJ, possible new remit for the BOE
* Fed to stay ultra-loose despite U.S. economic momentum
* Surveys to show euro zone edging in right direction
By Alan Wheatley, Global Economics Correspondent
LONDON, March 17 The Bank of Japan welcomes a
new anti-deflation governor this week, the Bank of England might
get a new pro-growth mandate and the Federal Reserve is likely
to stick like glue to its aggressive bond-buying programme.
Together, the three events speak volumes about the balance
of risks in a global economy that is on the mend but still a
long way from rude health.
Unemployment is intolerably high in the United States and
most of Europe, while growth in many countries is well below its
pre-crisis trend. As a result, inflation is firmly subdued.
Add to that the inability of many heavily indebted countries
to cope with higher borrowing costs, and it is no wonder that
central banks will do whatever is needed to keep a lid on bond
yields, said Joachim Fels, chief international economist at
Morgan Stanley in London.
"Despite the uptick in growth that we see, we don't think
central banks are done easing yet," Fels said. "The fears that
we get an early exit from quantitative easing and negative real
interest rate policies are unfounded, at least for this year."
Supportive monetary policy is a big reason why Fels expects
the global economy to emerge from the twilight as 2013 unfolds.
"We're still talking about sub-trend GDP growth this quarter
and next. But in the second half of this year, we think we will
move into daylight," he said.
THE BOJ BECOMES RELEVANT AGAIN
For once, the Bank of Japan will be an important driver of
this global reflation if Haruhiko Kuroda, who takes over at the
helm of the central bank on Wednesday, makes good on his pledge
to stop Japan's long deflationary rot.
Other central banks will feel the need to remain
expansionary if their currencies rise due to yen weakness
triggered by bold BOJ easing, Fels said.
Even the European Central Bank could come under a bit of
pressure to do more, added Daniel McCormack, a strategist with
Macquarie in London.
"Even though expectations are high for some pretty
aggressive action from the BOJ, when it does happen and you can
hold and see it and it's real, the market will still react
positively," he said.
Regime change of sorts is also in the air at the Bank of
Chancellor of the Exchequer George Osborne, Britain's
finance minister, is expected to announce a review of the BoE's
inflation-focused remit, or possibly outright changes to it,
when he presents his annual budget on Wednesday.
With little room to change taxes or spending because of his
determination to stick to austerity, Osborne might give more
room for the central bank to loosen monetary policy further.
That would smooth the path for the arrival of Mark Carney,
the current Bank of Canada chief, who takes over from Mervyn
King as BOE governor in July. Indeed, McCormack suspects Osborne
and Carney have struck a deal on the course of action to take.
"When Carney comes on board you can kind of expect some
razzle dazzle in terms of monetary policy," he said. "His legacy
will be judged by whether he turns the UK economy around in his
five-year tenure. So he's going to give it everything he's got."
With the United States, China and possibly Germany gaining
economic momentum, and central banks pushing the accelerator
firmly to the floor, equity markets should be in a sweet spot
for the rest of the year, McCormack added.
NO CHANGE AT THE FED
Minutes from the Bank of England's March meeting, also due
on Wednesday, will show whether the bank is inching closer to
easing even before Carney takes over. Three of its nine-member
policy-making panel, including King, had already voted for
additional bond-buying stimulus in February.
Rounding out Central Bank Wednesday is the Federal Reserve,
which looks set to end a two-day policy meeting by agreeing to
keep buying $85 billion a month in mortgage and Treasury bonds
in an effort to encourage investment and bolster confidence in
the economic recovery.
The policy is broadly working. The economy has shown such
resilience in the face of higher taxes, gasoline prices and
prospective federal spending cuts that some banks have marked up
their forecasts for GDP growth this quarter by a full percentage
point to an annual pace of 2.5 percent or more.
Figures this week on housing starts, building permits and
existing home sales are likely to confirm housing as an
important driver of the recovery.
Indeed, the Fed is likely to present a brighter outlook for
both growth and unemployment in updated forecasts to be released
with the outcome of the Fed's policy deliberations.
Ward McCarthy, chief financial economist with Jefferies in
New York, said he expected Fed Chairman Ben Bernanke to reflect
the more optimistic tone when he briefs the media.
"But I don't think he will be sufficiently upbeat that he
will be suggesting in any way that the Fed is going to alter its
policy intentions any time soon," McCarthy said.
In addition to the U.S. housing figures, preliminary polls
of purchasing managers from China and the euro zone top the
week's data slate alongside the monthly sentiment survey by
Germany's IFO economic research institute.
According to a Reuters poll of economists, the index derived
from the euro zone survey is likely to have edged up this month
from 47.9 to 48.2, still below the 50 threshold denoting
Uncertainty cast by Italy's deadlocked elections and the
unprecedented decision by euro zone finance ministers on
Saturday to tax bank depositors in Cyprus to help pay for a
bailout are among the many threats to still-fragile confidence
in the single currency.
But Morgan Stanley's Fels believes Europe, too, will
eventually emerge from the twilight zone. "We think the
recession will die of old age at some stage this year," he said.