BoJ Keeps Rate Steady, Delays 2% Inflation Target

The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its July 2017 meeting, as widely expected. Policymakers also kept its 10-years government bond yield target around zero percent but said they pushed back again the timing for achieving its 2 percent inflation target to sometime during fiscal 2019.
Bank of Japan l Rida Husna | 7/20/2017 4:19:55 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 a 7-2 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.  

Meanwhile, in a quarterly review of the central bank's forecasts, it said the recent development in the CPI had been relatively weak, as evidenced by limited price rises at the start of the new fiscal year. That said, policymakers  lowered slightly its core CPI forecast for fiscal 2017 to 1.1 percent from the previous estimate of 1.4 percent made in April. Meantime, the timing of the CPI to reach around 2 percent will likely be around fiscal 2019. The BoJ has now pushed back the price target timeframe six times since Governor Kuroda launched huge asset-buying program in 2013.

Regarding economic growth, policymakers estimate the economy to expand 1.8 percent during fiscal 2017, stronger than an earlier projection made in April of 1.6 percent. Overseas economies have continued to grow at a moderate pace and Japan's exports have been on an increasing trend. Business fixed investment has been on a moderate increasing trend, with corporate profits and business sentiment inproving and across a wider range of industries. Private consumption has increased its resilient against the backdrop of steady improvement in the employment and income situation. At the same time, public investment has been turning toward an increase and housing investment has been more or less flat. 

Excerpts from the Outlook for Economic Activity and Prices:

With regard to the risk balance, risks to both economic activity and prices are skewed to the downside. On the price front, 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 fully sufficiently firm, and thus development in prices contimue to warrant careful attention.

As for the conduct of monetary policy,  the Bank will contimue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control," 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 continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economc activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target.

For fiscal 2018, the economy is expected to expand by 1.4 percent, slightly faster than a previous projection of a 1.3 percent growth. Core CPI for the year is projected to stand at 1.5 percent, down from 1.7 percent in an earlier forecast. 

BoJ Keeps Rate Steady, Delays 2% Inflation Target