Japan Monetary Policy


Japan: Bank of Japan keeps easing program unchanged

October 7, 2015

At its 6–7 October monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 not to change its quantitative and qualitative (QQE) easing program. Once again, board member Takahide Kiuchi cast the lone opposing vote and called for cutting purchases to JPY 45 trillion on fears that the current stimulus could eventually create asset bubbles and destabilize the bond market. The Bank also decided to continue implementing money market operations so that the monetary base—its main monetary policy instrument—will increase at an annual pace of JPY 80 trillion (approximately USD 663 billion). The BoJ last expanded the purchase amount in October 2014. The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0% by the first half of FY 2016.

In its October assessment of the economy, the BoJ reiterated that the Japanese economy has continued to recover moderately. However, the Bank acknowledged that slowing growth in emerging countries has affected Japanese exports and production. The Bank added that exports and industrial production have been flat lately, while corporate profits have risen and business fixed investment has increased. In addition, gains in employment and income have led private consumption to remain healthy and housing investment to gain momentum.

Regarding price developments, the Bank stressed that, “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.” In addition, the Bank stated that inflation is likely to remain close to 0% for the time being.

All FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.00% and 0.10% until the end of 2017. Our panelists expect the yen to trade at 124.7 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 128.7 per USD.

Author: Ricard Torné, Lead Economist

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