BoJ Holds Policy Steady, Removes Inflation Target Date

The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its April 2018 meeting, as expected. Policymakers also kept its target for 10-year government bond yield around zero percent but dropped their target date for reaching 2 percent inflation.
Bank of Japan l Rida Husna | 4/27/2018 5:30:31 AM
With regard to the amount of JGBs to be purchased, the Bank will conduct buying at more or less the current pace -- an annual pace of increase of about 80 trillion yen.
The BoJ also determined by an unanimous vote to purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual paces of about JPY 6.0 trillion and about JPY 90 billion, respectively. As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen respectively.  

Regarding prices, the central bank previously had mentioned it expected inflation to hit 2 percent around fiscal 2019.

Meanwhile in a quarterly review of the central bank's forecasts, the BOJ said the momentum toward achieving the price stability target of 2 percent is maintained as the output gap is expected to continue improving and medium-to-long-term inflation expectations are projected to rise gradually; however. the momentum is not yet suffficiently firm, and developments in prices continue to warrant careful attention. For fiscal 2018, core CPI is projected to rise by 1.3 percent, down slightly from an earlier forecast of 1.4 percent. At the same time, the economy is expected to expand by 1.6 percent, stronger than a 1.4 percent expansion in the previous estimate, mainly reflecting solid growth in overseas economies.

Excerpts from the Outlook for Economic Activity and Prices:

Japan's economy is likely to continue its moderate expansion. In fiscal 2018, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both corporate and household sectors on the back of highly accommodative financial conditions and fiscal spending through the government's large stimulus measures. Business fixed investment is likely to continue increasing amid accommodative financial conditions, led mainly by investment intended for domestic capacity expansion in line with the economic expansion, Olympic Games-related investment, and labor-saving investment to address the labor shortage. Private consumption is also expected to follow a moderate increasing trend as emplyment and income situation continues to improve. Public investment is expected to remain at a relatively high level, mainly reflecting the supplementary budget for fiscal 2017 and Olympic Games-related demand, although the positive effects resulting from the government's past stimulus measures are likely to diminish moderately. Exports are expected to continue their moderate increasing trend on the back of the firm growth in overseas economies.

With regard to the risk balance, upside and downside risks to economic activity are generally balanced in fiscal 2018, but skewed to the downside for fiscal 2019 onward.

BoJ Holds Policy Steady, Removes Inflation Target Date