Japan Monetary Policy


Japan: Bank of Japan maintains monetary policy stance in December; upgrades economic view

December 19, 2014

At its 18–19 December monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to keep its monetary policy stance unchanged. The Bank also decided to continue implementing money market operations so that the monetary base—its main policy instrument—will increase at an annual pace of JPY 80 trillion (approximately USD 670 billion). The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

In its December assessment of the economy, the Bank maintained most of the wording from previous monetary policy statements, although it showed a somewhat more positive bias. While the BoJ restated that the economy continues to recover moderately as a trend, it also noted that the effects of the decline in consumption following the April sales tax hike, “have been waning on the whole.” Moreover, the Bank acknowledged a slight improvement in exports and a recovery in industrial output.

Regarding price developments, the Bank stressed again that, “inflation expectations appear to be rising on the whole,” and that inflation will remain at the current level for the time being. The next monetary policy meeting is scheduled for 20–21 January.

The monetary base expanded 36.7% in November to JPY 259 trillion, which was up from the JPY 256 trillion tallied in October and marked yet another all-time high. With this data, the Central Bank is on track to meet its target of doubling the country’s monetary base in 2015 as it has expanded by an accumulated 73.4% since the Bank unveiled its quantitative and qualitative easing program in April 2013.

All of the FocusEconomics Consensus Forecast panelists expect the collateralized overnight call rate to remain unchanged at between 0.0% and 0.1% in 2015, 2016 and 2017. FocusEconomics Consensus Forecast panelists expect the yen to trade at 124.8 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 127.9 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy December 2014

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

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