Japan Monetary Policy December 2018


Japan: BoJ holds firm on monetary policy in December

December 20, 2018

At its 19–20 December meeting, Bank of Japan (BoJ) board members voted seven-to-two to keep its monetary policy unchanged, as expected by market analysts. The BoJ maintained the short-term policy rate applied to current account balances held by financial institutions at the Bank at minus 0.10%. 10-year Japanese government bond (JGB) yields were capped at around 0%, with room to move up or down to some extent. Moreover, the Bank will continue its purchase of JGBs at a pace of around JPY 80 trillion (USD 704 billion) per year in a flexible manner. Regarding asset purchases other than JGBs, the board unanimously decided to purchase exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITS) at an annual pace of around JPY 6 trillion and JPY 90 billion yen, respectively. Similarly, the Bank’s purchases of commercial paper and corporate bonds were kept unchanged at about JPY 2.2 trillion yen and JPY 3.2 trillion yen per year.

The Bank noted the economy will continue to expand moderately in fiscal year 2018, which ends in March 2019. Looking forward, however, the consumption tax planned to be introduced next fiscal year may impede on growth and will likely impact prices and economic activity. That said, current levels of industrial production and labor market conditions should continue to buoy economic growth and investment.

Regarding price developments, the Bank stated that inflation has been relatively soft despite a positive output gap and tighter labor market conditions. Limited wage growth and subdued productivity gains are the main factors behind the sluggishness in price increases and, in turn, inflation expectations were largely unchanged.

The Bank noted that it will continue with its stimulus program (officially known as the “quantitative and qualitative monetary easing with yield curve control” framework) in order to achieve the Bank’s inflation target in a stable manner over an extended period. Governor Haruhiko Kuroda stated on 5 December that, “Japan's economy is expected to continue on an expanding trend from fiscal 2019 through fiscal 2020. Corporate profits at high levels and improvement in the employment situation are expected to bring about increases in business fixed investment and private consumption, with overseas economies continuing to grow firmly on the whole.”

The Bank’s next monetary policy meeting is scheduled for 28 January.

Japan Interest Rate Forecast

The majority of analysts FocusEconomics polled this month expect the Bank of Japan’s short-term policy rate to remain at minus 0.10% through to the end of 2020. The 10-year bond yield is expected to be 0.15% at the end of 2019, before rising to 0.29% at the end of 2020. Panelists expect the yen to trade at 109.7 per USD at the end of 2019. For 2020, they project that the yen will end the year trading at 106.5 per USD.

Author:, Economist

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