BoJ Holds Monetary Policy Steady



The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its January 2018 meeting, as expected. Policymakers also kept its 10-year government bond yield target around zero percent and offered a more upbeat view on inflation expectations.

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.  

Meanwhile in a quarterly review of the central bank's forecasts, the BoJ maintained its core CPI forecast for fiscal 2017 at 0.8 percent. However, medium-to-long-term inflation expectations are projected to rise as firms' stance gradually shifts toward raising wages and prices with an improvement in the output gap continuing. Considering the timing for inflation to reach 2 percent, policymakers said it will likely be around fiscal 2019. Regarding the GDP, the central bank said the projected growth rates are more or less unchanged from an earlier projection.

Excerpts from the Outlook for Economic Activity and Prices:

Japan's economy is likely to continue its moderate expansion. Through 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 underpinnings through the government's past stimulus measures. Business fixed investment is likely to continue increasing, supported by acccommodative financial conditions, heightened growth expectations and increases in Olympic Games-related investment, as well as in labor-saving investment to address the labor shortage. Private consumption is also expected to follow a moderate increasing trend as employment and income situation continues to improve. Public investment is expected to remain at a relatively high level, mainly reflecting Olympic Games-related demand, although the positive effects resulting from the past stimulus measures are likely to diminish moderately. Meanwhile, overseas economies are expected to continue growing at a moderate pace. Exports are expected to continue their moderate increasing trend on the back of such growth in overseas economies.

For fiscal 2018, the economy is expected to expand by 1.4 percent, unchanged from an earlier projection. Core CPI for the year is projected to rise by 1.4 percent, the same as the preceding forecasts.

With regard to the outlook, the year-on-year rate of change in the CPI is likely to continue on an uptrend and increase toward 2 percent, mainly on the back of the improvement in the output gap and the rise in medium- to long-term inflation expectations. Comparing the current projections with the previous ones, the projected rates of increase in the CPI are more or less unchanged. The timing of the year-on-year rate of change in the CPI reaching around 2 percent will likely be around fiscal 2019.


BoJ Holds Monetary Policy Steady


Bank of Japan | Rida Husna | rida@tradingeconomics.com
1/23/2018 8:09:30 AM