- The era of QE in Japan looks set to continue for some time yet.
- It kept policy settings unchanged in June, a decision in stark contrast to those from the ECB and Fed.
- It downgraded its view on inflation, signalling that current settings are likely to be maintained for a considerable period of time.
The US Federal Reserve is tightening monetary policy settings. And the European Central Bank (ECB) has just announced that it will end its asset purchase program at the end of the year.
The era of quantitative easing (QE) is coming to an end.
Except in Japan.
That point was rammed home today following the conclusion of the Bank of Japan’s (BoJ) latest monetary policy meeting with the bank keeping official interest rates and its quantitative easing (QQE) program steady in June.
It maintained its key policy rate at -0.1% and pledged to buy enough Japanese government bonds (JGBs) to keep benchmark 10-year yields steady at around 0%, known as yield curve control.
“With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace — an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen — aiming to achieve the target level of the long-term interest rate specified by the guideline,” it said.
While the BoJ has not been buying anywhere near that amount recently given yields have remained near target, it kept the arbitrary figure in nonetheless, perhaps as a reminder to markets that it is still prepared to buy an even greater amount of bonds should the need arise.
The board voted 8-1 to keep policy unchanged, as was the case when it last met in May.
Goushi Kataoka was once again the only member to dissent against the decision, arguing the bank should purchase JGBs so that long-term yields are “lowered further”.
Kataoka added that the possibility of consumer price inflation (CPI) lifting back towards the bank’s 2% target as “low at this point”.
Core CPI in Japan sits at just 0.7%, and has been decelerating, rather than accelerating, in recent months.
Hinting that Kataoka’s opinion may well be right, the BoJ also downgraded its assessment on inflation, describing it as “in a range of 0.5 to 1%”.
It previously stated that it was moving at around 1%.
Despite some less-than-stellar Japanese economic data recently, including a steep contraction in GDP growth in the March quarter, the BoJ kept its view on the economy unchanged, describing it as “expanding moderately”.
While the decision to keep policy was entirely expected, by downgrading its assessment on inflation and keeping its pledge to buy 80 trillion yen in JGBs per annum, the move reinforces the point that the outlook for policy settings in Japan are very different to those elsewhere in the world at present.
In the absence of an unexpected, and somewhat unlikely, pickup in Japanese inflationary pressures, it looks like the BoJ will be buying a lot more bonds ahead.