BoJ Leaves Monetary Policy Unchanged; Cuts Inflation Forecast


The Bank of Japan decided by an 8-1 vote to keep buying enough government bonds to boost monetary base at an annual pace of about 80 trillion yen. Policymakers said the economy continues to recover moderately as a trend while an increase in year-on-year consumer prices is between 0.5 to 1.0 percent, reflecting a decline in energy prices.

The Policy Board also decided by a unanimous vote to extend  a program to spur bank lending by one year and increased the limit of outstanding loans under the program from  ¥ 7 trillion to ¥ 10 trillion, while doubling the maximum amount of funds it can offer to each institution under a separate growth program. 

Excerpt from the statement by the Bank of Japan:

Japan's economy has continued to recover moderately as a trend, and effects such as those of the decline in demand following the front-loaded increase prior to the consumption tax hike have been waning on the whole. Overseas economies -- mainly advanced economies -- have been recovering, albeit with a lackluster performance still seen in part. In this situation, exports have shown signs of picking up. Business fixed investment has  been on a moderate increasing trend as corporate profits have improved. Public investment has more or less leveled off at a high level. Private consumption has remained resilient as a trend with the employment and income situation improving steadily, and the effects of the decline in demand following the front-loaded increase have  been waning on the whole. Housing investment, which continued to decline following the front-loaded increase, has recently started to bottom out. Against the backdrop of these developments in demand both at home and abroad, industrial production has started to bottom out, due in part to the progress in inventory adjustments. Meanwhile, financial conditions are accommodative. On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food), excluding the direct effects of the consumption tax hike, is in the range of 0,5- 1.0 percent. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.
 
With regard to the outlook, Japan's economy is expected to continue its moderate recovery trend, and the effects such as those of  the decline in demand following the front-loaded increase prior to the consumption tax hike are expected to dissipate. The year-on-year rate of increase in the CPI is likely to slow for the time being, reflecting the decline in energy prices.
 
Compared with the forecasts presented in the October 2014 Outlook for Economic Activity and Prices, the growth rate will likely be lower for fiscal 2014, but will likely be higher for fiscal 2015 and 2016. With regard to the CPI, the outlook for the underlying trend remains unchanged, but the year-on-year rate of increase will likely be lower toward fiscal 2015, due to the significant decline in crude oil prices. The rate of increase for fiscal 2016 will likely be more or less unchanged from the October forecast.
 
Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the risk of low inflation rates being protracted in Europe, and the pace of recovery in the U.S. economy.
 
Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.

BoJ Leaves Monetary Policy Unchanged; Cuts Inflation Forecast


Bank of Japan l Rida Husna l rida@tradingeconomics.com
1/21/2015 4:50:34 AM