BoJ Holds Monetary Policy Steady, Raises GDP Forecast


The Bank of Japan left the key interest rate unchanged at -0.1 percent at its April 2017 meeting, as widely expected. Policymakers also decided to maintain its 10-year government bond yield target around zero percent but said they raised their economic growth forecast to 1.6 percent for fiscal 2017 from an earlier projection of an 1.5 percent expansion, due to rising exports.

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 Japan's economy has been turning toward a moderate expansion and overseas economies have continued to grow at a moderate pace. Exports have been on an increasing trend while private consumption has been resilient against the backdrop of steady improvement in the employment and income situation. At the same time, housing investment and public investment have been more or less flat.

Regarding prices, the BoJ lowered slightly its core CPI forecast for fiscal 2017 to 1.4 percent from the previous estimate of 1.5 percent, as cost of some consumer durable goods as well as services have shown somewhat weak developments in recent months. Still, the BoJ maintained its projection that inflation will reach 2 percent around fiscal 2018. 

Excerpts from the Outlook for Economic Activity and Prices:

Domestic demand in Japan is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors, on the back of highly accommodative financial conditions and fiscal spending through the government's large scale stimulus measures. Business fixed investment  is likely to continue increasing moderately, supported by accommodative financial consitions, heightened growth expectations and increases in Olympic Games-related demand. Private consumption is expected to follow a moderate increasing trend as employee income continues to improve. Public investment is projected to increase through fiscal 2017, due mainly to the positive effects resulting from a set of stimulus measures and thereafter remain at a relatively high level with Olympic-Games related demand. Exports are expected to follow a moderate increasing trend on the back of an improvement in overseas economies. In fiscal 2019, the pace of expansion in Japan's economy is projected to decelerate, mainly due to a slowdown in domestic demand.

For fiscal 2018, the economy is expected to expand by 1.3 percent, faster than a previous projection of a 1.1 percent growth. Core CPI for the year is projected to stand at 1.7 percent, unchanged from an earlier forecast. 


Bank of Japan | Rida Husna | rida@tradingeconomics.com
4/27/2017 8:54:48 AM