Japan Monetary Policy

Japan

Japan: Bank of Japan refrains from adding stimulus while deflation fears loom

March 17, 2015

At its 16–17 March monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to maintain 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 660 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 March assessment of the economy, the BoJ restated that the economy has continued its moderate recovery trend. The mild recovery in the global economy—mostly in advanced nations—has prop up Japanese exports, while private consumption remained resilient due to increasing employment and income. Business investment improved slightly on the back of higher corporate profits.

Regarding price developments, while the Bank stressed that, “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% going forward due to the oil price decline.

At the press conference held after the monetary policy meeting, Governor Haruhiko Kuroda stated that prices could decline slightly in the months to come. That said, he stressed that the lull in inflation will be temporary and that prices will pick up as the economy recovers.

The monetary base expanded 36.7% in February and reached JPY 275 trillion, which was unchanged from the result tallied in January. With these results, the Central Bank has already met its target of doubling the country’s monetary base in March 2015 as it has expanded by an accumulated 104.3% 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 March 2015

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


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