Japan Leaves Monetary Policy Steady


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 inflation expectations seem to be rising.

The Bank  will also purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of about 3 trillion yen and about 90 billion yen 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.

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. Business sentiment has generally stayed at a favorable level, although some cautiousness has been observed. 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 around 1 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 be at around the current level for the time being.
 
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.

Japan Leaves Monetary Policy Steady


Bank of Japan l Rida l rida@tradingeconomics.com
12/19/2014 9:52:58 AM