BoJ Holds Monetary Policy Steady


The Bank of Japan kept its pledge to increase the monetary base at an annual pace of about 80 trillion yen at its April 2016 meeting. Policymakers also decided to leave unchanged a 0.1 percent negative interest rate and said they will adopt a JPY300 billion loan-supplying program aimed at assisting banks operating in areas hit by earthquakes.

The Policy Board also decided by an 8-1 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 JPY3.3 trillion and about JPY90 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. 

Excerpts from the Statement by the Bank of Japan:

With a view to supporting financial institutions in disaster areas affected by the Kumamoto Earthquake in their efforts toward meeting demand for funds for restoration and rebuilding, the Bank decided by a unanimous vote to introduce a funds-supplying operation for these financial institutions. The specifics of this operation are the following: the total amount of loans is set at 300 billion yen; the Bank will provide loans at a zero interest rate; and twice as much as the amount outstanding of financial institutions' borrowing through this operation will be added to their Macro Add-on Balances, to which a zero interest rate is applied.

In a separate release on the economic outlook, the bank viewed that Japan's economy has continued its moderate recovery trend, although exports and production have been sluggish due mainly to the effects of the slowdown in emerging economies. The outlook through fiscal 2018 envisages that, although sluggishness is expected to remain in exports and production for the time being, domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors, and exports are expected to increase moderately on the back of emerging economies moving out of their deceleration phase. Thus, Japan's economy is likely to be on a moderate expanding trend.

The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices, and, as the underlying trend in inflation steadily rises, accelerate toward 2 percent. Meanwhile, assuming that crude oil prices will rise moderately from the recent level, it is likely that the contribution of energy items to the year-on-year rate of change in the CPI will decrease gradually from the current level of slightly more than minus 1 percentage point, but remain negative until the beginning of fiscal 2017. Based on this assumption, the timing of the year-on-year rate of change in the CPI reaching around 2 percent -- the price stability target -- is projected to be during fiscal 2017. Thereafter, the year-on-year rate of change in the CPI is likely to be around 2 percent on average.

Comparing the current projections through fiscal 2017 with the previous ones, GDP growth is somewhat lower, influenced mainly by weaker exports that reflect the slowdown in overseas economies. The projected rate of increase in the CPI for fiscal 2016 is lower, mainly reflecting downward revisions in projections for GDP growth and wage developments.

BoJ Holds Monetary Policy Steady


Bank of Japan l Rida Husna | rida@tradingeconomics.com
4/28/2016 8:06:49 AM