Mount Fuji, Japan

Japan Monetary Policy September 2021

Japan: Bank of Japan keeps policy unchanged at September meeting

At its meeting ending on 22 September, the Bank of Japan (BoJ) kept its monetary policy 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 a pickup in economic activity, with the Bank noting an increase in exports and industrial production despite some supply-side constraints. Nevertheless, it continued to describe the economy as being in a “severe situation” due to the effects of the Covid-19 pandemic, and, as such, felt that it had grounds to take a wait-and-see approach.

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:

“The policy inaction in September was in line with market expectations, and does not change our monetary policy outlook for Japan., The even weaker inflation outlook, as compared to its G7 peers, reinforces our 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, with BoJ Governor Kuroda seeing inflation back to 2% target not before 2023.”

The next monetary policy meeting is set to end on 28 October.

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