Japan: BoJ keeps policy on hold, paints a rosier picture
June 16, 2017
The Bank of Japan (BoJ) maintained its monetary policy stance at its 15–16 June meeting, voting to continue with its Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control program as long as is necessary to achieve and maintain its 2.0% inflation target. The Bank voted 7–2 to leave the existing policy in place, which was in line with market expectations. The only two dissenters, who are in favor of a gradual normalization, will step down in July, leaving Governor Haruhiko Kuroda with a monochrome board. The interest rate applied to policy-rate balances in current accounts held by financial institutions at the Bank was left at minus 0.1%, 10-year bond yields were capped at around 0%, while the pace of asset purchases remained at JPY 80 trillion (USD 727 billion) annually.
The result of June’s meeting confirms that Japan is still far away from unwinding its long-lasting monetary stimulus, as inflationary pressures remain weak and achieving the 2.0% target is still nothing more than a mirage. The Bank slightly upgraded its view of the economy this month, stating that “private consumption has increased its resilience”. This compares with April’s assessment that consumer spending was merely “resilient”. Although a tightening labor market and a healthy external sector are propping up the economy, for now these dynamics are not translating into a sustained increase in wage growth, which would help drive inflation higher.
Adding to voices to maintain the current monetary policy stance, International Monetary Fund Deputy Managing Director David Lipton stated that it was premature for the BoJ to discuss an exit strategy and that authorities should continue implementing their accommodative fiscal and monetary policies. Moreover, the IMF official urged the government to push ahead with structural reforms in a context of resilient economic growth. The next meeting is scheduled for 19–20 July.