Japan Monetary Policy


Japan: Bank of Japan stands pat on policy; points to weakening economy

October 7, 2014

At its 6–7 October monetary policy meeting, the Bank of Japan (BoJ) announced that it will keep 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 551 and 645 billion). The decision, which was in line with market expectations, is aimed at meeting the Central Bank’s inflation target of 2.0%.

Although the Bank maintained most of the wording from previous statements, its assessment of economic conditions became somewhat more pessimistic. While the BoJ reaffirmed that the economy is continuing to recover moderately as a trend, it noted that, “some weakness particularly on the production side has been observed due mainly to the effects of the subsequent decline in demand following the front-loaded increase prior to the consumption tax hike.” In addition, the Bank pointed out that the decline in demand has been fading out, “albeit unevenly,” and that industrial production has showed some weakness, mainly due to inventory adjustments.

Regarding global developments, 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 stressed again that, “inflation expectations appear to be rising on the whole.” The next monetary policy meeting is scheduled for 31 October.

The monetary base expanded 35.3% in September to JPY 246 trillion, which was slightly up from the JPY 242 trillion tallied in August and marked an 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 the monetary base has expanded by an accumulated 64.3% 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 107.6 per USD by the end of this year. For 2015, the panel projects that the yen will weaken further to 112.7 per USD.

Author: Ricard Torné, Lead Economist

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Japan Monetary Policy Chart

Japan Monetary Policy September 2014

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

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