SYDNEY — The Bank of Japan (BoJ) held monetary policy steady at the conclusion of its July monetary policy meeting, an outcome widely expected by financial markets and economists.
it also upped its economic assessment and forecasts for GDP growth while downgrading its view on the outlook for inflation. Again, an outcome that was widely anticipated.
As was the case when it last met in June, the board voted 7-2 to retain its quantitative and qualitative monetary easing (QQE) with yield curve control program, keeping interest rates unchanged at -0.1% while pledging to purchase Japanese government bonds (JGB) so that 10-year JGB yields will remain at around zero percent.
It said that it would conduct JGB purchases at an annual pace of around 80 trillion yen with the aim “to achieve the target level of the long-term interest rate specified by the guideline”.
The BoJ also left its annual purchases of exchange traded funds, Japan real estate investment trusts and corporate paper and bonds unchanged at about 6 trillion yen, 90 billion yen and 5.4 trillion respectively.
While it made no changes to monetary policy, the bank did make several changes to its economic forecasts.
On the outlook for GDP, it now expects it to grow by 1.8% in the current financial year (FY), up from 1.6% in its previous forecasts offered in April, with growth in FY 2018/19 now seen at 1.4%, up from 1.3% forecast previously. It’s forecast for FY 2019/20 was unchanged at 0.7%.
As a result, it upgraded its assessment on the domestic economy, describing it as “expanding moderately”. Previously it described it as “turning toward a moderate expansion”.
It may seem like semantics to most, but that is an “upgrade”.
In contrast, despite expectations for faster economic growth, it downgraded its forecast for core CPI in the years ahead.
In the current financial year it now sees core inflation, that which excludes fresh food prices, at 1.1%, below the 1.4% level it forecast three months ago.
For FY 2018/19 it’s expected to lift to 1.5%, down from 1.7% seen previously, with that for 2019/20 tipped to accelerate to 1.8%. That too was below the 1.9% pace seen previously, and still short of the 2% level it targets.
Given those forecasts, the BoJ pushed back the expected timing of when it will hit its 2% target to 2019/20. Previously it saw that occurring in the 2018/19 financial year.
There has been no meaningful market reaction to either the policy decision or the BoJ’s updated forecasts.