Japan Monetary Policy December 2021


Japan: Bank of Japan holds rates steady at December meeting; tweaks quantitative easing parameters

December 17, 2021

At its final meeting of the year ending on 17 December, the Bank of Japan (BoJ) kept its main monetary policy levers untouched, as widely expected by market analysts. In terms of rates, the BoJ left the short-term policy rate for current accounts held by financial institutions at the Bank unchanged at minus 0.10%. It also continued to not set an upper limit on the amount of Japanese government bonds (JGBs) it will purchase in order to cap the 10-year JGB yield at around 0.00%.

However, regarding asset purchases, the Bank stated it would complete its scheduled buying commitments at the end of Q1 2022, and would then gradually moderate its purchases from April 2022 onwards. Meanwhile, the BoJ announced a six-month extension to parts of its special Covid-19 support financing program until the end of September 2022: Funding to SMEs will remain largely in place, while loans to large corporations will conclude as scheduled at the end of March 2022.

The policy decisions came amid mild price pressures and a slow pickup in economic activity, with the Bank highlighting the impact and downside risks stemming from the ongoing Covid-19 pandemic. As such, it once again described the economy as being in a “severe situation” with supply constraints and tepid consumer consumption weighing on activity, and thus it felt that it had grounds to take a wait-and-see approach.

Looking ahead, the BoJ maintained its dovish tone in its communiqué, again stating that it will “closely monitor the impact of Covid-19 and will not hesitate to take additional easing measures if necessary”, while it also “expects short- and long-term policy interest rates to remain at their present or lower levels”.

Regarding future policy moves, Alvin Liew, senior economist at United Overseas Bank, commented:

“Our BoJ monetary policy outlook is unchanged as the uncertain near-term growth outlook (due to Omicron) and potentially even weaker inflation outlook (due to crude oil price correction) keeps our view the BoJ will not be tightening anytime soon. There is an entrenched belief that unlike its G7 peers, the BoJ has little (or no) room for normalisation and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ. PM Kishida previously pledged that ultra-low interest rates must be maintained for now, so it implies that politics will not change our monetary policy outlook for Japan.”

The next monetary policy meeting is set to end on 18 January.

All FocusEconomics panelists expect the BoJ’s short-term policy rate to remain at minus 0.10% through to the end of 2023. The 10-year bond yield is forecast to be 0.09% at the end of 2022 and 0.10% at the end of 2023. Meanwhile, panelists see the yen trading at 111.6 per USD at the end of 2022 and 110.8 per USD at the end of 2023.

Author:, Economist

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Japan Monetary Policy Chart

Japan Monetary Policy November 2021

Note: Monetary base in JPY trillion and 10-year bond yields in %.
Source: Bank of Japan (BoJ) and Refinitiv.

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