BoJ Leaves Monetary Policy Unchanged


The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its September 2017 meeting, hours after the Federal Reserve announced a plan to begin selling some of the assets on its balance sheet beginning in October. Policymakers also kept its 10-years government bond yield target around zero percent and maintained its 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 8-1 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.  

New board member Goushi Kataoka dissented to the BOJ's decision to keep its interest rate targets, saying current monetary policy was insufficient to bring inflation to 2 percent during fiscal 2019.

Excerpts from the Statement by the Bank of Japan:

Japan's economy is expanding moderately. 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 with corporate profits improving.  Private consumption has increased its resilience against the background of steady improvement in the employment and income situation. Meanwhile, public investment have been increasing and housing investment has been more or less flat. Reflecting these increases in demand both at home and abroad, industrial production has been on an increasing trend, and labor market conditions have continued to tighthen steadily. 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) is around 0.5 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: the US economy policies and the impact on global financial markets; developments in emerging and commodity-exporting economies; negotiations on the United Kingdom's exit from 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.

BoJ Leaves Monetary Policy Unchanged


Bank of Japan l Rida Husna | rida@tradingeconomics.com
9/21/2017 3:49:03 AM