Japan Monetary Policy


Japan: Bank of Japan stands pat on easing; turns more cautious on economic outlook

September 15, 2015

At its 14–15 September monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to maintain its quantitative and qualitative (QQE) easing program unchanged. Yet again, board member Takahide Kiuchi cast the lone dissenting vote and called for cutting purchases to JPY 45 trillion on fears that the current stimulus could eventually create asset bubbles and destabilize the bond market. 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 663 billion). The BoJ last expanded the purchase amount in October 2014. 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 September assessment of the economy, the BoJ reiterated that the Japanese economy has continued to recover moderately. However, the Bank was less optimistic than in the previous month and acknowledged that exports and industrial production, “are affected by the slowdown in emerging economies.” As a result, exports and industrial production have been flat lately. On the upside, rising corporate profits, improving business sentiment and steady gains in employment and wages have encouraged domestic demand.

Regarding price developments, while the Bank stressed that, “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% for the time being due to continued low energy prices.

The monetary base expanded 33.3% in August and reached JPY 323 trillion, which was unchanged from the previous month. The monetary base has expanded by an accumulative 140% since the Bank unveiled its QQE program in April 2013.

All FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.00% and 0.10% until the end of 2017. Our panelists expect the yen to trade at 126.4 per USD by the end of 2015. For 2016, the panel projects that the yen will weaken further to 129.6 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy August 2015

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

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