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Japan Monetary Policy March 2018

Japan: BOJ stands pat on monetary policy ahead of Kuroda reappointment

Bank of Japan (BoJ) board members decided in an 8-to-1 vote to maintain monetary policy unchanged at their 8–¬9 March meeting, a decision in line with market analysts’ expectations. The Bank will continue with its stimulus program (officially known as the “Quantitative and Qualitative Monetary Easing with Yield Curve Control” framework) for as long as necessary to achieve the 2.0% inflation target. The short-term policy rate applied to current account balances held by financial institutions at the Bank was left at minus 0.1%, 10-year bond yields were capped at around 0%, and the pace of Japanese government bond purchases remained at JPY 80 trillion (USD 724 billion) annually. Once again, board member Goushi Kataoka was the only dissenter, as he deems the current monetary policy stance insufficient to meet the Bank’s inflation target and defends further monetary easing.

The Bank upheld its decision by stating that inflation is rising slowly due to reduced economic slack and an increase in mid- to long-term inflation expectations. The economy continues to expand moderately on the back of a “virtuous cycle” from strong external demand to high corporate earnings and an improved job market, amid highly accommodative financial conditions. While the Bank acknowledged a recovery in private consumption, it also stated that the recovery is fluctuating, posing downside risks to the inflation outlook.

In the press conference, Governor Haruhiko Kuroda downplayed, once again, the possibility of any early exit from monetary stimulus even in fiscal year 2019, which is when the Bank forecasts that inflation will hit its target, as there is still high uncertainty around the inflation outlook. Kuroda, who will start his second five-year term as BoJ Governor on 20 March, stated that, “Even if our price goal is met during fiscal 2019, that doesn’t mean we will immediately exit ultra-easy policy.” He moreover stressed the importance of open trade in the global economy in the wake of the recent tariff increases by the United States.

With inflation still far from the target, the possibility of a trade war looming and a strong yen exerting downward pressure on prices, the BoJ will keep its ultra-loose monetary policy in place for the foreseeable future. The Bank’s next monetary policy meeting is scheduled for 26–27 April.

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