Japan Monetary Policy June 2021


Japan: Bank of Japan holds policy steady at June meeting; unveils measures to address climate change

June 18, 2021

At its meeting ending on 18 June, the Bank of Japan (BoJ) left all its monetary policy parameters unchanged, 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%. 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 policy decisions came amid muted price pressures and an ongoing but fragile recovery. The Bank described the economy as still being in a “severe situation” due to the effects of the Covid-19 pandemic. As such, with a third state of emergency likely having restrained economic activity during April–June, the BoJ felt that it had grounds to take a wait-and-see approach. Moreover, the Bank decided to extend its special Covid-19-related financial support for a third time. The program was due to expire at the end of September, but will now run for a further six months until end-March 2022.

Away from its standard policy framework, the BoJ announced its intention to introduce measures that will provide funding to financial institutions that are seeking to address issues arising from climate change. The new initiative echoes moves made by the Bank of England last month that place a greater onus on the UK’s banks to scrutinize the impact of their financial actions on global warming, and comes as Prime Minister Suga has set the goal of Japan reaching net-zero emissions by 2050. Further details will be announced at the July monetary policy meeting.

Looking ahead, the BoJ reiterated its dovish tone in its communiqué, continuing to state 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:

“Today’s policy inaction was in line with market expectations, and reinforces the 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. We also keep our view for the BoJ to do more and enhance its monetary policy easing further and we are also cognizant that market expectations are now tilted to the BoJ having reached the limits of its monetary policy and will remain in a holding pattern on policy until at least April 2023 when Governor Kuroda is scheduled to leave the BoJ.”

The next monetary policy meeting is set to end on 16 July.

The majority of FocusEconomics panelists expect the BoJ’s short-term policy rate to remain at minus 0.10% through to the end of 2022. The 10-year bond yield is forecast to be 0.09% at the end of 2021 and 0.09% again at the end of 2022. Panelists see the yen trading at 107.7 per USD at the end of 2021 and 107.1 per USD at the end of 2022.

Author:, Economist

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Japan Monetary Policy Chart

Japan Monetary Policy May 2021

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

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