Japan Monetary Policy January 2020


Japan: BoJ leaves monetary policy unchanged in January despite stronger growth expectations

January 21, 2020

At its monetary policy meeting ending on 21 January, the Bank of Japan (BoJ) decided in a seven-to-two vote to keep its accommodative monetary policy scheme unchanged, as had been expected by market analysts, remaining cautious despite raising its economic growth forecasts. The Bank also slightly lowered its inflation expectations, further supporting the decision given that inflation remains stuck well below the 2.0% target rate.

The short-term policy rate, which applies to current account balances held by financial institutions at the Bank, remains at minus 0.10%. 10-year Japanese government bond (JGB) yields will continue to be capped at around 0%, although the yields will be able to move up and down to some extent. In addition, the BoJ will continue to purchase Japanese government bonds (JGBs) at a pace of about JPY 80 trillion (USD 736 billion) per year.

Regarding asset purchases other than JGBs, central bankers unanimously decided to continue purchasing 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 BoJ’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.

In terms of its outlook, the BoJ raised its economic growth forecast for fiscal year 2020, which runs from 1 April 2020 to 31 March 2021, to a range of 0.8%–1.1%, which is up from the previous forecast range of 0.6%–0.9%. The core inflation forecast range for the same fiscal year was tweaked down to 1.0%–1.1% from 0.8%–1.2%. For FY 2021, the BoJ raised its economic growth forecast range to 1.0%–1.3% from 0.9%–1.2%, and lowered its inflation forecast to a range of 1.2%–1.6% from 1.2%–1.7%.

Looking ahead, the Bank of Japan reiterated it will continue to use its all its tools to bring core inflation above the 2.0% target in a stable manner, and, like at the last monetary policy meeting, it highlighted that it would pursue additional policy easing measures if necessary to meet that objective.

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 2021. The 10-year bond yield is expected to be at minus 0.04% at the end of 2020, before rising to 0.06% at the end of 2021. Meanwhile, panelists project the yen to trade at 106.8 per USD at the end of 2020 and at 107.4 per USD at the end of 2021.

Author:, Economist

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Japan Monetary Policy Chart

Japan Monetary Policy December 2019

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

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