Japan Monetary Policy

Japan

Japan: Bank of Japan refrains from adding fresh stimulus

April 30, 2015

At its 30 April 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 673 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 April assessment of the economy, the BoJ restated that the economy has continued its moderate recovery trend. Domestically, the household sector has improved in recent months due to rising employment and a more favorable income situation. Moreover, companies experienced a pick-up in exports and production. As a result, the Bank expects the economy to continue growing above potential in the quarters to come. Through fiscal 2017, however, the economy is likely to be affected by the front-loaded increase and subsequent decline in demand prior to and after the scheduled second round of consumption tax hikes.

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 affirmed that inflation is likely to remain close to 0% in the near term due to the oil price decline.

At the press conference held after the monetary policy meeting, Governor Haruhiko Kuroda stated that inflation expectations are holding up and pushed back the date for reaching the Bank’s inflation target of 2.0% to the first half of fiscal 2016. Although Kuroda’s words suggest that the BoJ is unlikely to add more stimulus, analysts believe that the Bank will have to pull the trigger again in the coming months.

The monetary base expanded 35.2% in March and reached JPY 282 trillion, which was up from the JPY 275 billion tallied in February. With these results, the Central Bank comfortably met its target of doubling the country’s monetary base by March 2015. The monetary base has expanded by accumulative 109.4% 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 127.1 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 131.0 per USD.


Author: Ricard Torné, Head of Economic Research

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Japan Monetary Policy March 2015 6

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


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