Japan Monetary Policy March 2019


Japan: BoJ keeps monetary policy steady despite gloomier view on the economy

March 15, 2019

At its 14–15 March meeting, Bank of Japan (BoJ) board members decided in a seven-to-two vote to keep its monetary policy unchanged, in line with market analysts’ expectations. The BoJ kept 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%, albeit with some elasticity which will allow the yields to move upwards and downwards to some extent. Moreover, the Bank will continue to purchase JGBs at a pace of about JPY 80 trillion (USD 720 billion) per year in a flexible manner. Regarding asset purchases other than JGB, the board unanimously decided to purchase exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITS) at an annual pace of about 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.

Despite subdued price pressures, BoJ members kept the monetary policy framework unchanged on signs that the output gap and inflation expectations are improving. The improvement reflects the virtuous cycle of a tightening labor market supporting income growth and solid corporate earnings buttressing investment. However, weaker global growth is weighing on the external sector and industrial production.

At the press conference held after the meeting, Governor Haruhiko Kuroda noted that weak overseas demand will likely have a negative impact on Japan’s all-important external sector. That said, overall growth should be underpinned by solid domestic demand.

The Bank is expected to 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 for an extended period of time as price pressures remain subdued.

The Bank’s next monetary policy meeting is scheduled for 24–25 April.

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 rise to 0.15% at the end of 2019, before climbing further 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.


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Japan Monetary Policy Chart

Japan Monetary Policy February 2019 0

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

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