Japan Monetary Policy


Japan: Bank of Japan refrains from fresh stimulus despite weaker economic growth

September 4, 2014

At its 3–4 September monetary policy meeting, the Bank of Japan (BoJ) announced that it will maintain its monetary policy stance unchanged. The Bank also unanimously decided to continue implementing money market operations so that the monetary base, its main policy instrument, will increase at an annual pace of between JPY 60 and 70 trillion (approximately USD 572 and 667 billion). The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

The Bank mostly recycled wording from the previous statement, affirming that the economy, “has continued to recover moderately as a trend, although the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike has been observed.” While the Bank stated that investment has increased moderately as corporate profits have improved, it also acknowledged that, “exports have shown some weakness.” In addition, the Bank noted that private consumption and housing investment have remained resilient as employment and income developments improved.

The Bank restated that the main risks to its outlook are the pace of recovery in the United States, European debt sustainability, and uncertainty in commodity-exporting markets. In terms of price developments, the BoJ stated that, “inflation expectations appear to be rising on the whole.” The next monetary policy meeting is scheduled for 6 October.

The monetary base expanded 40.5% in August to JPY 242 trillion, which was slightly down from the JPY 243 trillion tallied in July. With this data, the Central Bank is on track to meet its target of doubling the country’s monetary base in 2015, as the monetary base has expanded by an accumulated 62.0% since the Bank unveiled its quantitative and qualitative easing program in April 2013.

All of the FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.0% and 0.1% in 2014, 2015 and 2016. FocusEconomics Consensus Forecast panelists expect the yen to trade at 106.0 per USD by the end of this year. For 2015, the panel projects that the yen will weaken further to 111.9 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy August 2014

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

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