Japan Monetary Policy July 2020


Japan: Bank of Japan leaves its monetary policy unchanged in July

July 15, 2020

At its monetary policy meeting ending on 15 July, the Bank of Japan (BoJ) left its monetary policy unchanged as expected by most market analysts, after gradually but significantly loosening it since the beginning of the coronavirus pandemic. The BoJ likely made this decision so it could take stock of the effects of its recent easing measures on the fragile Japanese economy.

In terms of rates, the BoJ left the short-term policy rate on the current account balances of banks that it holds unchanged at minus 0.10%. The BoJ will also continue to not set an upper limit on the amount of Japanese government bonds (JGB) it will purchase in order to cap the 10-year JGB yield at around 0.00%.

On the asset purchasing side, the BoJ left its buying commitments unchanged, including those of exchange traded funds, Japanese real estate investment trusts, corporate paper and corporate bonds. The BoJ also committed to continue supporting the financing of businesses through its extensive and recently-expanded programs.

Also at the meeting, the BoJ released a new outlook report for the economy, showing it now forecasts the economy to shrink between 5.7% and 4.5% in FY 2020, down from its earlier forecast range of between minus 5.0% and minus 3.0%. The Bank forecasts core consumer prices to fall between 0.6% and 0.4% in FY 2020 (previous forecast range: -0.7% to -0.3%).

Turning to the outlook for monetary policy, the BoJ stated: “For the time being, the Bank will closely monitor the impact of [Covid-19] and will not hesitate to take additional easing measures if necessary, and also it expects short- and long-term policy interest rates to remain at their present or lower levels.”

Takashi Miwa, chief Japan economist at Nomura, expanded: “In [its] ‘baseline scenario’ of the outlook for the economy and prices […] the BOJ maintained its view that inflation is likely to increase gradually toward its price stability target, but added the phrase ‘although it will take time.’ We think this is meant to tacitly imply that it is unlikely to abandon its current easing regime during the period covered by these forecasts.”

The next monetary policy meeting is set to end on 17 September.

Most analysts polled by FocusEconomics expect the BoJ’s short-term policy rate to remain at minus 0.10% through to the end of 2021. The 10-year bond yield is forecast to be at minus 0.02% at the end of 2020, before rising to positive 0.04% at the end of 2021. Panelists see the yen trading at 107.8 per USD at the end of 2020 and at 107.9 per USD at the end of 2021.

Author:, Economist

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