Japan Monetary Policy


Japan: Bank of Japan keeps monetary policy on hold, growth forecasts broadly stable

July 15, 2014

At its 14–15 July monetary policy meeting, the Bank of Japan (BoJ) decided to maintain its monetary policy stance unchanged. The Bank also unanimously decided to continue implementing money market operations so that the monetary base, its main policy instrument, will increase at an annual pace of between JPY 60 and 70 trillion (approximately USD 591 and 689 billion). The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

The Bank restated that the economy, “has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed.” In addition, the Bank noted that overseas economies are on a recovery path and that, “exports have recently leveled off more or less,” while investment has increased moderately as corporate profits have improved. The Bank reaffirmed that the main risks to its outlook are the pace of recovery in the United States, European debt sustainability, and uncertainty in emerging markets. In terms of price developments, the BoJ stated that, “inflation expectations appear to be rising on the whole.” The next monetary policy meeting is scheduled for 7 August.

The monetary base expanded 42.6% in June to JPY 233 trillion, thus reaching a new record high. With this data, the Central Bank is on track to meet its target of doubling the country’s monetary base in 2015 as the monetary base has expanded by an accumulated 55.9% since the Bank unveiled its quantitative and qualitative easing program in April 2013.

Meanwhile, the BoJ updated its economic outlook. Compared with the forecasts presented in April 2014, the lower bound of this fiscal year’s GDP growth was reduced slightly from 0.8% to 0.6%. For the next fiscal year ending in March 2016, the BoJ raised the upper bound of growth slightly from 1.5% to 1.6%. Regarding inflation outlook, the BoJ signaled that the country is on track to meet its inflation target of 2.0% by next year.

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 and 2015. FocusEconomics Consensus Forecast panelists expect the yen to trade at 107.2 per USD by the end of this year. For 2015, the panel projects that the yen will weaken further to 111.8 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy June 2014

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

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