Japan Monetary Policy December 2020


Japan: Bank of Japan keeps rates unchanged in December; extends special Covid-19 financing program

December 18, 2020

At its meeting ending on 18 December, the Bank of Japan (BoJ) kept its monetary policy unchanged, as widely expected by market analysts. The decision came amid a continued albeit slowing recovery, although muted inflation and a recent surge in Covid-19 cases likely drove the continued wait-and-see approach.

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 decided to continue 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 left its buying commitments unchanged, including those of exchange traded funds, Japanese real estate investment trusts, corporate paper and corporate bonds.

Meanwhile, the Bank unanimously voted to extend its corporate finance support program—which was introduced in response to the economic impact of the Covid-19 pandemic—by six months until end-September 2021. As such, the BoJ will make additional purchases of commercial paper and corporate bonds to the tune of JPY 20 trillion (around USD 195 billion) and will remove the upper limit (previously JPY 100 billion per institution) for loans made to mainly small- and medium-sized firms.

Meanwhile, in its communiqué the BoJ reiterated its dovish tone, stating that it will “closely monitor the impact of the novel coronavirus and will not hesitate to take additional easing measures if necessary”. Moreover, the Bank announced that it would conduct an assessment to devise “further effective and sustainable monetary easing”, in order to support the economy and achieve its target of 2.0% inflation. Findings will likely be released during its March 2021 policy meeting.

Regarding the Bank’s upcoming assessment, Hiromichi Shirakawa and Takashi Shiono, economists at Credit Suisse, commented:

“We think it understandable that the central bank now feels obliged to make excuses on why the 2% inflation target has not yet been achieved. […] The forthcoming assessment report will be something that reconfirms the Bank’s reluctance on taking another bold step on easing even if it continues to miss the inflation target. Rather, it will be used as a basis for prolonging the current low interest rate policy.”

The next monetary policy meeting is set to end on 21 January 2021.

The majority of FocusEconomics panelists expect the BoJ’s short-term policy rate to remain at minus 0.10% through to the end of 2022. The 10-year bond yield is forecast to be 0.04% at the end of 2021, before rising to 0.08% at the end of 2022. Panelists see the yen trading at 104.5 per USD at the end of 2021 and 104.5 per USD at the end of 2022.

Author:, Economist

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Japan Monetary Policy Chart

Japan Monetary Policy November 20 20

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

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