Japan Monetary Policy

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Japan: Bank of Japan stands pat; downgrades view on inflation in January

January 21, 2015

At its 20–21 January 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 679 billion). That said, the BoJ extended some loan programs by one year, while it increased funds for one lending facility. The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

In its January assessment of the economy, the Bank maintained most of the wording from previous monetary policy statements. The BoJ restated that the economy continues to recover moderately and it also noted that the effects of the decline in consumption following the sales tax hike in April 2014, “have been waning on the whole.” Moreover, the Bank acknowledged a slight improvement in exports and a recovery in industrial output. The Bank boosted its growth forecasts as the country will benefit strongly from lower oil prices.

Regarding price developments, while the Bank stressed again that, “inflation expectations appear to be rising on the whole,” it affirmed that inflation is likely to moderate going forward due to the oil price decline. Against this backdrop, the Central Bank slashed its inflation forecasts for fiscal years 2015 and 2016, thereby delaying the Bank’s goal of reaching inflation of 2.0% in fiscal year 2015. The next monetary policy meeting is scheduled for 17 February.

The monetary base expanded 38.2% in December to JPY 267 trillion, which was up from the JPY 259 trillion tallied in November and marked yet another all-time high. With this data, the Central Bank is on track to meet its target of doubling the country’s monetary base in 2015 as it has expanded by an accumulated 78.7% 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 January 2015

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


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