Japan Monetary Policy


Japan: Bank of Japan maintains easing program

November 19, 2015

At its 19–20 November monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 not to change its quantitative and qualitative (QQE) easing program. Once again, board member Takahide Kiuchi cast the lone opposing vote and called for cutting purchases to JPY 45 trillion on fears that the current stimulus could eventually create asset bubbles. The Bank also decided to continue implementing money market operations so that the monetary base—its main monetary policy instrument—will increase at an annual pace of JPY 80 trillion (approximately USD 651 billion). The BoJ last expanded the QQE program in October 2014. The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0% by the first half of FY 2016.

In its November assessment of the economy, the BoJ reiterated that the Japanese economy has continued to recover moderately and that softening growth in emerging countries has affected Japanese exports and production. The Bank added that, despite the slowdown in emerging economies, growth among developed countries continued at a moderate pace. Moreover, corporate profits have risen and business fixed investment has increased, while gains in employment and income have led private consumption to remain healthy.

Regarding price developments, the Bank stressed that, “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.” In addition, the Bank stated that inflation is likely to remain close to 0% for the time being due to the effects of the decline in energy prices.

In a press conference after the meeting, Bank of Japan Governor Haruhiko Kuroda stated that while the Japanese economy was back into recession mainly due to cutbacks to inventories, an expected pickup in capital expenditure will boost the economy in the coming months, thereby making an adjustment to the BoJ’s QQE program unnecessary.

All FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.00% and 0.10% until the end of 2017. Panelists expect the yen to trade at 124.7 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 128.7 per USD.

Author: Ricard Torné, Lead Economist

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