Japan Monetary Policy December 2017


Japan: Bank of Japan keeps monetary policy unchanged in December

December 21, 2017

The Bank of Japan’s (BoJ) board members decided in an 8-to-1 vote to keep monetary policy unchanged. The decision, made at the 20–21 December meeting, was in line with market analysts’ expectations. The Bank decided to continue with its stimulus program (officially known as the “Quantitative and Qualitative Monetary Easing with Yield Curve Control” framework) for as long as necessary to achieve the 2.0% inflation target. The short-term policy rate applied to current account balances held by financial institutions at the Bank was left at minus 0.1%, 10-year bond yields were capped at around 0%, and the pace of Japanese government bond purchases remained at JPY 80 trillion (USD 705 billion) annually.

The Bank decided to keep its ultra-loose monetary policy as inflation remains in a “weakening phase” and mostly supported by higher commodity prices. Going forward, the BoJ expects that inflation will gradually increase toward its 2% target on the back of an increase in mid- to long-term inflation expectations and an improving output gap. The ongoing expansion in economic activity is expected to continue going forward as the economy benefits from solid corporate and household spending. The main downside risks to the Bank’s outlook are economic policies in the U.S. and their impact on global financial markets, developments in emerging-market economies and Brexit, among others.

The Bank of Japan will continue pursuing an ultra-loose monetary policy going forward to achieve its target. With inflation well below the target, Governor Haruhiko Kuroda will keep the BoJ’s monetary policy program in place for the foreseeable future. The Bank’s next monetary policy meeting, which is scheduled for 22–23 January, could shed light on the BoJ’s next steps.

The analysts FocusEconomics polled this month expect the Bank of Japan’s short-term policy rate to end both 2018 and 2019 at between minus 0.05% and minus 0.10%. The 10-year bond yield is expected to be 0.07% at the end of 2018, before rising to 0.20% in 2019.Panelists expect the yen to trade at 111.7 per USD at the end of 2018. For 2019, the panel also projects that the yen will end the year trading at 111.7 per USD.

Author: Ricard Torné, Lead Economist

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