Japan Monetary Policy


Japan: Bank of Japan maintains quantitative and qualitative program unchanged

August 7, 2015

At its 6–7 August monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to maintain its quantitative and qualitative (QQE) easing program unchanged. Board member Takahide Kiuchi cast the lone dissenting vote and is calling for cutting purchases to JPY 45 trillion on fears that the current stimulus could eventually create asset bubbles and destabilize the bond market. 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 641 billion). The BoJ last expanded the purchase amount 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 August assessment of the economy, the BoJ reiterated that the Japanese economy has continued to recover moderately, strengthening exports and industrial production. Rising corporate profits, improving business sentiment and steady gains in employment and wages have encouraged domestic demand. The recovery in the global economy remains on track although lackluster performance persists in some countries.

Regarding price developments, while the Bank stressed that, “inflation expectations appear to be rising on the whole from a somewhat longer-term perspective”, it stated that inflation is likely to remain close to 0% in the near term due to the energy price decline.

The monetary base expanded 32.8% in July and reached JPY 323 trillion, which was up from the JPY 313 billion tallied in the previous month. The monetary base has expanded by an accumulative 140% since the Bank unveiled its QQE 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. Our panelists expect the yen to trade at 126.7 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 130.5 per USD.

Author: Ricard Torné, Head of Economic Research

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Japan Monetary Policy Chart

Japan Monetary Policy July 2015

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

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