BoJ Leaves Monetary Policy Unchanged


The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its June 2017 meeting, as widely expected. Policymakers also kept its 10-years government bond yield target around zero percent and offered a more upbeat view on private consumption and overseas economies.

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.  

Excerpts from the Statement by the Bank of Japan:

Japan's economy has been turning toward a moderate expansion. Overseas economies have continued to grow at moderate pace on the whole. In this situation, exports have been on an increasing trend. On the domestic demand side, business fixed investment has been on a moderate increasing trend as corporate profits improving.  Private consumption has increased its resilient against the background of steady improvement in the employment and income situation. Meanwhile, housing investment and public investment have been more or less flat. Reflecting these moderate increases in demand both at home and abroad, industrial production been on an increasing trend. Financial conditions are highly accommodative. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been about 0 percent. Inflation expectations have remained in a weakening phase.

With regard to the outlook, Japan's economy is likely to turn to a moderate expansion. Domestic demand 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. Exports are expected to continue their moderate increasing trend on the back of an improvement in overseas economies. 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 an improvement in the output gap and a rise in medium-to long-term inflation expectations.
 
Risks to the outlook include the following: developments in the US economy and the impact of its monetary policy on global financial markets; the consequences stemming from the United Kingdom's vote to leave the European Union (EU) and their efects; prospects regarding the European debt problem, including the financial sector, and geopolitical risks.

The Bank will continue with "Quantitative and Qualitative Monetary Easing (QQE) with a Negative Interest Rate," 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.

Bank of Japan l Rida Husna | rida@tradingeconomics.com
6/16/2017 3:27:42 AM