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%).
Author: Christopher Thomas, Economist