Japan Leaves Monetary Policy Steady


At its April 30th, 2014 meeting, the Bank of Japan decided to keep flooding the economy with new money at the same rate as it has been, despite tepid industrial production data and a recent sales tax rise, as the central bank considers it can grasp 2 percent inflation target by next year.

In a unanimous decision, policymakers said the bank will keep conducting money market operations so that the monetary base will increase at an annual pace of about 60-70 trillion yen. In a separate statement, the central bank published its April outlook for the economy. 

Excerpt from the Bank of Japan’s April Outlook for Economic Activity and Prices:

From fiscal 2014 through fiscal 2016, Japan's economy is likely to continue growing at a pace above its potential as a trend, while it will be affected by the front-loaded increase and subsequent decline in demand prior to and after the two rounds of consumption tax hikes. 

The year-on-year rate of increase in the consumer price index (CPI, for all items less fresh food and excluding the direct effects of the consumption tax hikes) is likely to be around 1¼ percent for some time, follow a rising trend again from the second half of this fiscal year, and reach around 2 percent around the middle of the projection period. Thereafter, Japan's economy is expected to gradually shift to a growth path that sustains such inflation in a stable manner. 

Comparing the current projections with the previous ones, while the growth rate for fiscal 2014 is somewhat lower, due mainly to a delay in export recovery, the projected rates of increase in prices are more or less unchanged as (1) continued firm domestic demand, which tends to have large stimulative effects on employment, has tightened labor supply and demand conditions, and this situation is expected to be reinforced, and (2) a rise in medium- to long-term inflation expectations seems to have started to influence actual wage and price settings.  

In the context of the price stability target, the Bank of Japan examined the aforementioned baseline scenario (the first perspective) and upside and downside risks to the baseline scenario (the second perspective). As for the conduct of monetary policy, quantitative and qualitative monetary easing (QQE) has been exerting its intended effects. 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.  

Japan Leaves Monetary Policy Steady


Bank of Japan | Joana Taborda | joana.taborda@tradingeconomics.com
4/30/2014 9:35:15 AM