The Bank of Japan isn't rushing to do anything

Junko Kimura/Getty Images
  • The Bank of Japan just left monetary policy settings unchanged, again.
  • Its GDP and inflation forecasts were largely unchanged from those offered three months ago.
  • The bank still doesn’t see inflation hitting its 2% target in the next couple of years.

At a time when other major central banks are either tightening or looking to tightening monetary policy, the Bank of Japan (BoJ) remains firmly on the sidelines.

It left monetary policy steady yet again in April, an outcome that was entirely expected by financial markets.

Voting 8-1, the BoJ decided to leave its quantitative and qualitative easing with yield curve control (QQE+YCC) policy unchanged, keeping interest rates anchored at -0.1% while pledging to purchase Japanese government bonds to ensure 10-year yields will remain around 0%.

It said it will conduct purchases of government bonds at an annual pace of around 80 trillion yen to achieve this.

The BoJ said it will persist with this program — known as quantitative and qualitative easing (QQE) with yield curve control — as long as it is necessary to exceed and stay above its 2% inflation target in a “stable manner”.

That view has been well entrenched for some time now, and will likely remain that way for some time yet.

The bank also left its purchases of exchange-traded funds (ETFs) and Japanese real estate investment trusts (J-REITS) at an annual pace of about 6 trillion and 90 billion yen respectively; again, an outcome that was entirely expected.

Goushi Kataoka was the lone dissenter, suggesting that given the risks, the bank should increase the size of its asset purchases so that bond yields of 10-years or longer “would be broadly lowered further”.

Like the monetary policy decision, the BoJ also made few changes to its GDP and inflation forecasts in its quarterly Outlook for Economic Activity and Prices Report.

Here are the updated forecasts issued by the BoJ, comparing them to those released three months ago.

Source: Bank of Japan

In the current fiscal year, it expects real GDP to be a little stronger at 1.6%, up from 1.4% in January. However, its view on core inflation was downgraded from 1.3% to 1.4%.

In the 2019 financial year starting March next year, its GDP growth forecast was revised up to 0.8% while its inflation forecast was left unchanged at 1.8%.

For the 2020 fiscal year, it still sees core inflation at just 1.8%, below, not above, its 2% target.

Given its updated forecasts, the BoJ refrained on offering a view on when inflation will reach its target, simply noting that the “projected rates of increase in the CPI are more or less unchanged”.

It previously stated that “the timing of the year-on-year rate of change in the CPI reaching around 2% will likely be around fiscal 2019”.

There has been negligible reaction to either the policy decision or updated economic forecasts.

The policy statement can be accessed here. The latest Outlook for Economic Activity and Prices Report is found here.

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