Japan Monetary Policy April 2017


Japan: BoJ keeps policy steady while upgrading economic forecasts

April 27, 2017

The Bank of Japan (BoJ) maintained its monetary policy stance at its 26–27 April 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.

Despite upgrading its view of the economy, the Bank decided to keep its current accommodative monetary policy stance unchanged on the back of still subdued inflationary pressures. At the monetary policy meeting’s press conference, Governor Haruhiko Kuroda highlighted that, “the time to start on exit strategy is when we achieve the 2 per cent objective.” In this regard, the Bank left its inflation projections mostly unchanged at between 0.6% and 1.6% for Fiscal Year 2017 (previously: 0.8%-1.6%). The Bank’s estimates for FY 2018 were also left broadly unrevised at between 0.8% and 1.9% (previously: 0.9%-1.9%).

Nevertheless, the Bank was more upbeat about Japan’s economic outlook and stated that, “[the] economy is likely to continue expanding and maintain growth at a pace above its potential, mainly through fiscal 2018.” Bold policy support and stronger global demand will fuel Japan’s economic growth. That said, the Bank warned that the positive economic cycle might end in FY 2019 due to the planned sales tax hike. About GDP, the BoJ foresees the economy expanding between 1.4% and 1.6% in FY 2017 (previously: between +1.3% and 1.6%), while growth will decelerate slightly to between 1.1% and 1.3% in FY 2018 (previously: between +1.0% and 1.2%).

The analysts FocusEconomics polled this month expect the BoJ short-term policy rate to end this year at minus 0.10%, and also see it ending 2018 at minus 0.11%. The 10-year bond yield is expected to be 0.07% by the end of this year, before rising to 0.11% in 2018.FocusEconomics Consensus Forecast panelists expect the yen to trade at 117.4 per USD at the end of 2017. For 2018, the panel projects the yen to strengthen marginally to 117.2 per USD.

Author:, Economist

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Japan Monetary Policy Chart

Japan Monetary Policy March 2017 0

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

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