Mount Fuji, Japan

Japan Monetary Policy June 2020

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

At its monetary policy meeting ending on 16 June, the Bank of Japan (BoJ) left its monetary policy unchanged, although it revised upwards the amount of business loans it could potentially back under a pre-existing scheme designed to support the economy. The BoJ also left the short-term policy rate on the current account balances of banks that it holds unchanged at minus 0.10%.

Regarding its loan support program, which helps banks lend to businesses at low interest rates, the Bank of Japan revised the total potential value of the program to JPY 110 trillion (around USD 1.0 trillion), up from JPY 75 trillion (around USD 700 billion), after the government expanded its loan support program in May and thereby increased the scope of the BoJ’s program. The BoJ also underlined that it would continue not setting an upper limit on the amount of Japanese government bonds (JGB) it would purchase in order to cap the 10-year JGB yield at around 0.00%.

Turning to the outlook for monetary policy, the Bank of Japan said:

“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.”

Assessing the recent decision, Takashi Miwa, chief Japan economist at Nomura, noted:

“We see little likelihood of the BoJ implementing additional easing measures anytime soon. While earlier statements on monetary policy had said that the ‘Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost’, the references to ‘the momentum toward achieving the price stability target’ have been missing from the statements since 27 April. This would seem to make it clear that the Bank’s handling of monetary policy is no longer tied to inflation or the momentum behind it, unlike before. Accordingly, we think that even if core CPI inflation (which excludes fresh food but includes the impact of the consumption tax hike and the provision of free education) were to turn negative, the BoJ would probably not treat that as a reason to implement fresh easing measures.”

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