Japan Monetary Policy March 2016


Japan: Bank of Japan holds its fire at March's meeting

March 15, 2016

The Bank of Japan (BoJ) refrained from introducing further monetary stimulus at its 14–15 March monetary policy meeting following the surprise announcement at January’s meeting in which the Bank introduced negative interest rates to its monetary tool box and prompted Japan to sell 10-year bonds with a yield below zero for the first time. Regarding the “quantity” dimension, the BoJ voted 8–1 to continue implementing money market operations so that the monetary base will increase at an annual pace of JPY 80 trillion (approximately USD 704 billion). The Bank also voted 8–1 to purchase Japanese government bonds so that their outstanding amount will increase at an annual pace of about JPY 80 trillion, with an average remaining maturity of 7–12 years. Finally, the newly-introduced negative interest rate for the Policy-Rate Balances in current accounts held by financial institutions at the BoJ was kept at minus 0.1%. The decisions are aimed at meeting the “price stability target of 2% as long as it is necessary for maintaining that target in a stable manner”.

In its March assessment of the economy, the BoJ’s stated that Japan’s economy has continued its gradual recovery trend, despite the slowdown in emerging-market economies. The Bank also noted that growth among developed economies has decelerated slightly. This situation has had a negative impact in the external sector. Corporate profits are strengthening investment, while private consumption remained resilient due to steady gains in the labor market.

Regarding price developments, the Bank stressed that, “although inflation expectations appear to be rising on the whole from a somewhat longer-term perspective, they have recently weakened.” In addition, the Bank stated that inflation is likely to remain close to 0% for the time being due to the effects of the decline in energy prices.

FocusEconomics polled this month expect the collateralized overnight call rate to end this year at minus 0.02% and at minus 0.03% in 2017. FocusEconomics Consensus Forecast panelists expect the yen to trade at 123.4 per USD at the end of 2016. For 2017, the panel projects the yen to weaken to 124.2 per USD. .

Author: Ricard Torné, Head of Data Analysis

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Japan Monetary Policy Chart

Japan Monetary Policy February 2016

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

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