Japan Monetary Policy


Japan: Bank of Japan boosts loan programs, leaves QE program unchanged

February 18, 2014

At its 17-18 February monetary policy meeting, the Bank of Japan (BoJ) decided to keep its stance on monetary policy unchanged. The Bank also unanimously decided to continue implementing money market operations so that the monetary base, its main policy instrument, would increase at an annual pace of between JPY 60 and 70 trillion (approximately USD 575 and 670 billion). The decision, which was in line with market expectations, is aimed at achieving the price stability target of 2.0%.

In an unexpected move, the Central Bank decided to double the scale of the Growth-Supporting Funding facility to JPY 7.0 trillion (USD 68.4 billion) and allow financial institutions to borrow funds from the Central Bank up to an amount that is twice as much as the net increase in banks' lending. According to analysts, the expansion in credit came on the back of disappointing Q4 GDP figures and was widely seen as a signal that the BoJ would ease its asset-purchase program further in coming months.

The Bank's accompanying statement, however, was left unchanged. The Bank restated that the economy, "has continued to recover moderately," and that, "a front-loaded increase in demand prior to the consumption tax hike has recently been observed." The Bank reaffirmed that the pace of recovery in the United States, European debt sustainability and uncertainty in emerging markets are the main risks to its outlook. In terms of price developments, the Bank stated that inflation expectations, "appear to be rising as a whole." The next monetary policy meeting is scheduled for 10-11 March.

All of the FocusEconomics Consensus Forecasts panelists expect the collateralized overnight call rate to remain unchanged at between 0.0% and 0.1% in 2014 and 2015.

FocusEconomics Consensus Forecast panelists expect the yen to trade at 109.4 per USD by the end of this year. For 2015, the panel projects the yen to weaken further to 113.6 per USD.


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