Japan Monetary Policy


Japan: Bank of Japan maintains stimulus program; changes framework for monetary policy meetings

June 19, 2015

At its 18–19 June 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 monetary policy instrument—will increase at an annual pace of JPY 80 trillion (approximately USD 652 billion). 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 June assessment of the economy, the BoJ restated that the economy has continued to recover moderately. Rising corporate profits and steady gains in employment and wages have strengthened domestic demand. Moreover, the economy benefited from the ongoing recovery in the global economy, particularly in advanced economies.

Regarding price developments, while the Bank stressed that, medium- to long-term 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 Bank also approved a new framework for monetary policy meetings, which will be implemented next year. The BoJ will provide forecasts for the Japanese economy on a quarterly basis, instead of the current twice per year, and it will disclose detailed forecasts from the Policy Board’s members. Moreover, the Bank will convene eight times per year, which is down from the 14 annual meetings it currently holds.

The monetary base expanded 35.6% in May and reached JPY 304 trillion, which was up from the JPY 300 billion tallied in the previous month. The monetary base has expanded by an accumulative 125.9% 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. Our panelists expect the yen to trade at 126.6 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 130.8 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy May 2015 0

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

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