Another Bank of Japan meeting has come and gone without ruffling the market's feathers

Irfan Khan/Los Angeles Times via Getty Images

The Bank of Japan (BoJ) decided to leave monetary policy settings unchanged at its first meeting of the year, pushing back, yet again, against growing market expectations that a change in stance is coming.

the board voted eight to one – as it did at the December meeting – to retain its quantitative and qualitative monetary easing (QQE) with yield curve control (YCC) program, keeping interest rates unchanged at -0.1% while pledging to buy Japanese government bonds (JGB) so that 10-year JGB yields will remain anchored around 0%.

The bank stated that it would buy JGBs at an annual pace of around 80 trillion yen, adding it will “continue expanding the monetary base until the year-on-year rate of increase in the observed CPI exceeds 2% and stays above the target in a stable manner”.

Given recent stability in 10-year yields around 0%, even with significantly lower asset purchases from the BoJ, some had speculated that it may drop its reference to an annual purchase target.

However, with inflation still well below the bank’s 2% target, that view was in the minority.

Goushi Kataoka, again, was the only board member to dissent against the decision, arguing the policy statement should state that the bank will “take additional easing measures” should inflationary pressures not lift as the bank currently expects.

Again mirroring last month a the board voted unanimously to keep 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.

Like the monetary policy decision, the BoJ’s quarterly Outlook for Economic Activity and Prices Report was equally as unexciting with the bank keeping its forecasts for GDP and core consumer price inflation (CPI) unchanged from those previously offered in October last year.

Source: Bank of Japan

Despite the unchanged forecasts for core CPI to lift to 2% in fiscal year 2019, the BoJ did make a small upgrade to its view on inflation expectations, noting that “inflation forecasts have been more or less unchanged”.

In October, the bank said “inflation expectations have remained in a weakening phase”.

This may explain the knee-jerk reaction in the USD/JPY immediately following the release of statement, hinting that the BoJ is inching towards reversing ultra-easy monetary policy settings.

The USD/JPY fell to as low as 110.59 but is now back at 110.70, down 0.19% for the session.

The BoJ assessment on the broader economy was left unchanged.

“Japan’s economy is expanding moderately,” it said.

The full monetary policy statement and Outlook for Economic Activity and Prices Report can be accessed here.

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