Statement on Monetary Policy
1. At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by a unanimous vote, to set the following guideline for money market operations for the intermeeting period:
The Bank of Japan will encourage the uncollateralized overnight call rate to remain at around 0 to 0.1 percent.
2. Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing. Business fixed investment has started to pick up. The employment and income situation has remained severe, but the degree of severity has eased somewhat. As for private consumption, demand for some goods has suffered a reverse after the sharp increase seen previously. Housing investment is showing signs of picking up. On the other hand, exports have been somewhat weak. With these developments in demand both at home and abroad, production has declined slightly. Meanwhile, financial conditions have continued to ease further. The CPI (excluding fresh food) is declining on a year-on-year basis due to the substantial slack in the economy as a whole, but the slowing trend in the pace of decline has continued.
3. The Bank's baseline scenario projects that Japan's economy is expected to gradually overcome the deceleration in the pace of improvement and return to a moderate recovery path as the growth rate of the global economy is likely to start increasing again led by emerging and commodity-exporting economies. As for prices, the year-on-year rate of decline in the CPI is expected to continue slowing.
4. Compared with the projections presented in the October 2010 Outlook for Economic Activity and Prices, growth prospects will likely be higher for fiscal 2010 mainly due to the revision of past GDP statistics, but remain broadly unchanged for fiscal 2011 and 2012. With regard to prices, the year-on-year rates of change in the domestic corporate goods price index and the CPI (excluding fresh food) will likely be somewhat higher in fiscal 2011 mainly due to the rise in commodity prices, but broadly in line with the October projections for fiscal 2012.
5. In the area of economic activity, there are some upside risks such as faster growth in emerging and commodity-exporting economies due to robust domestic demand and capital inflows from overseas. However, although concerns about the U.S. economy have subsided, there are downside risks associated with uncertainties about the outlook for the U.S. and European economies and developments in global financial markets. Regarding the outlook for prices, there is a possibility that inflation will rise more than expected if commodity prices increase further due to high growth rates in emerging and commodity-exporting economies, while there is also a risk that the rate of inflation will deviate downward from the Bank's baseline scenario due, for example, to a decline in medium- to long-term inflation expectations.
6. In order for Japan's economy to overcome deflation and return to a sustainable growth path with price stability, the Bank will continue to consistently make contributions as the central bank through the three-pronged approach of pursuing powerful monetary easing consisting of comprehensive monetary easing, ensuring financial market stability, and providing support to strengthen the foundations for economic growth. The Bank will continue to carefully examine the outlook for economic activity and prices, and take policy actions in an appropriate manner.