Japan Monetary Policy


Japan: Bank of Japan keeps monetary policy unshaded; Kuroda rules out imminent easing

February 18, 2015

At its 17–18 February monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to maintain its monetary policy stance unchanged. The Bank also decided to continue implementing money market operations so that the monetary base—its main policy instrument—will increase at an annual pace of JPY 80 trillion (approximately USD 679 billion). The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

In its February assessment of the economy, the Bank restated that the economy has continued its moderate recovery trend. Exports have picked up as overseas economies have been recovering, while private consumption remained resilient due to increasing employment and income. Business investment improved on the back of rising corporate profits and industrial production picked up in December.

Regarding price developments, while the Bank stressed again that, “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective,” it affirmed that inflation is likely to moderate going forward due to the oil price decline.

At the press conference held after the monetary policy meeting, Governor Haruhiko Kuroda ruled out the possibility of increasing stimulus in the short-term. That said, he left the door open to further easing if inflation deviates from the path of achieving Bank’s target.

The monetary base expanded 37.4% in January and reached JPY 275 trillion, which was up from the JPY 267 trillion tallied in December and marked yet another all-time high. With this data, the Central Bank is on track to meet its target of doubling the country’s monetary base in 2015 as it has expanded by an accumulated 84.1% since the Bank unveiled its quantitative and qualitative easing program in April 2013.

All of the FocusEconomics Consensus Forecast panelists expect the collateralized overnight call rate to remain unchanged at between 0.0% and 0.1% in 2015, 2016 and 2017. FocusEconomics Consensus Forecast panelists expect the yen to trade at 124.8 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 127.9 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy February 2015

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

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