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Japan Monetary Policy April 2021

Japan: Bank of Japan holds policy steady at April meeting; upgrades 2021 growth outlook

At its meeting ending on 27 April, the Bank of Japan (BoJ) left its monetary policy unchanged, as widely expected by market analysts. The decision came amid continued deflationary pressures and an ongoing but fragile recovery, with a second state of emergency likely having restrained economic activity during February–March, thus giving the BoJ continued grounds to take a wait-and-see approach.

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%. Regarding asset purchases, the Bank kept its buying commitments unchanged, including those of exchange traded funds, Japanese real estate investment trusts, corporate paper and corporate bonds.

The Bank also released an updated outlook for economic activity and prices, noting that the economy is recovering gradually on the back of increasing foreign demand and the waning impact of the pandemic. For FY 2021 (April 2021–March 2022), the Bank upgraded its GDP forecast slightly to 4.0% (January report: +3.9%). Moreover, the Bank raised its forecast for FY 2022 to 2.4% growth from 1.8% in its January report. On the price front, the BoJ sees consumer prices rising just 0.1% in FY 2021 (January report: +0.5%), before increasing 0.8% in FY 2022 (January report: +0.7%).

The BoJ reiterated its dovish tone in its communiqué, continuing to state that it will “closely monitor the impact of the novel coronavirus 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:

“The policy inaction today was in line with market expectations, while the inflation forecast downgrade for FY 2021 and the persistent view of well below 2% inflation forecasts in FY 2022/2023 reinforces our view that the BoJ will not be tightening anytime soon, and will maintain its massive stimulus in the next few years, possibly at least until FY 2023.”

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

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