Japan Monetary Policy


Bank of Japan keeps monetary policy unchanged; yen depreciates to four-year low

At its 19-20 December monetary policy meeting, the Bank of Japan (BoJ) decided to maintain its stance on monetary policy unchanged. The Bank also unanimously decided to continue implementing money market operations so that the monetary base - its main policy instrument - would increase at an annual pace of between JPY 60 and 70 trillion (approximately USD 608 and 710 billion). This decision, which was in line with market expectations, aims at achieving the price stability target of 2.0%.

In its accompanying statement, the Central Bank stated that the economy, "is expected to continue a moderate recovery," although, "it will be affected by the front-loaded increase and subsequent decline in demand prior and after the consumption tax hike." In terms of price developments, the Bank stated that annual inflation, "is likely to rise for the time being." The next monetary policy meeting is scheduled for 21-22 January 2014.

All of the FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.0% and 0.1% in 2014.

As a result of the ultra-loose monetary policy stance the BoJ adopted in order to beat the country's prolonged deflation, the Japanese yen weakened sharply in 2013. The yen traded at 104.3 per USD on 19 December, which was 4.1% weaker than the level registered on the same day of the previous month. On a year-to-date basis, this represents a loss of 23.5% against the dollar and marks the yen's lowest value against the U.S. dollar since October 2009.

FocusEconomics Consensus Forecast panelists expect the yen to trade at 102.5 per USD by the end of this year. For 2014, the panel projects the yen to weaken further to 110.1 per USD.

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Japan Monetary Policy Chart

Japan Monetary Policy December 2013

Note: Collateralized overnight call rate in %.
Source: Bank of Japan (BoJ).

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