Japan Monetary Policy


Japan: Bank of Japan stays put in November after October's unexpected easing

November 19, 2014

At its 18–19 November monetary policy meeting, the Bank of Japan (BoJ) voted 8–1 to keep its monetary policy stance unchanged. This development contrasts that of the previous month’s meeting, when the Bank’s Policy Board decided to accelerate the pace of asset purchases in a split 5–4 vote. On 31 October, the Bank stated that it would implement money market operations so that the monetary base—its main policy instrument—would increase at an annual pace of JPY 80 trillion (approximately USD 712 billion). In addition, the BoJ announced an increase in the pace of its annual purchases of Japan Government Bonds (JGB), while it said that it would bring the average maturity of JGB purchases up to 7–10 years. The Bank also stated that it would increase its investment in exchange-traded funds and in Japan real estate investment trusts. The decision was aimed at meeting the Central Bank’s inflation target of 2.0% and pre-empting risks of a return to Japan’s traditional “deflationary mindset”.

In the accompanying monetary policy statement, the Bank maintained most of the wording from previous notes. The BoJ stated that the economy is continuing to recover moderately as a trend, although, “some weakness particularly on the production side has remained 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 private consumption remained strong on improvements in the labor market and rising income.

Regarding price developments, the Bank stressed again that, “inflation expectations appear to be rising on the whole” and that inflation will remain at the current level for the time being. The next monetary policy meeting is scheduled for 18 December.

The monetary base expanded 36.9% in October to JPY 256 trillion, which was up from the JPY 246 trillion tallied in September 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 it has expanded by an accumulated 71.0% 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 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 November 2014

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

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