Japan Monetary Policy


Central Bank eases further, opens door to revising inflation target

At its 19-20 December monetary policy meeting, the Bank of Japan (BoJ) unanimously decided to increase the Asset Purchase Program by JPY 10 trillion (USD 119 billion) to JPY 101 trillion (USD 906 billion), in a decision expected by the market. Specifically, the Bank expanded both the acquisition of treasury discount bills and the purchase of government bonds by JPY 5 trillion each, while leaving the rest of the program unchanged.

With this move, the BoJ has boosted the Bank's financial asset-buying program five times in 2012. The policy board also unveiled operational details regarding the Stimulating Bank Lending Facility, which is expected to reach more than JPY 15 trillion. Simultaneously, the Bank also decided to leave the collateralized overnight call rate unchanged at between 0 to 0.1%, in line with market expectations.

According to analysts, the victory of Shinzo Abe in the 16 December general elections has forced the Central Bank to adopt a more dovish stance. In this regard, the BoJ also signalled its willingness to revise upwards the current "price stability goal in the medium to long term" of 1% in the next monetary policy meeting scheduled for 22 January.

During the electoral campaign, Abe repeatedly called for further monetary easing and for expanding public spending in order to pull the country out of recession and tame the strong yen, after the currency appreciated versus the USD during most of 2012. Against this backdrop, the Japanese yen has stopped its appreciating trend in recent weeks, falling to its lowest level since April 2011 by 19 December.

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