JP: Bank of Japan Announcement

Thu Jun 18 22:05:00 CDT 2015

Consensus Actual Previous
Change 0bp 0bp 0bp
Level 0-0.1% 0-0.1% 0-0.1%

As expected, the Bank of Japan left its key interest rate range at zero to 0.1 percent. It said it would continue to buy JGBs at annual pace of Y80 trillion. The vote to maintain its policy was 8 to 1. Takahide Kiuchi voted against the decision once again, arguing that a pace of purchases (Y45 trillion) was appropriate.

In its statement, the monetary policy board said that the economy has continued to recover moderately and was likely to continue doing so. The MPB said that the core CPI was likely to continue to be about zero for now. It noted that private consumption has been resilient and exports were picking up. However, the BoJ sees risks to its outlook stemming from European growth and prices.

The BoJ announced a new framework for their monetary policy meetings with the changes taking effect January 1, 2016. The changes include reducing the number of monetary policy board meetings from 14 to 8 and releasing an Outlook for Economic Activity and Prices on a quarterly basis. They will also now release each policy board member's forecasts for and risk assessments of the economy and prices and will release a summary document. With the reduction to eight meetings a year, the BoJ joins the Federal Reserve, the ECB who reduced its meeting frequency this year and the Bank of England intends to reduce its meeting schedule as well.

Analysts are checking the statement and Governor Haruhiko Kuroda's post meeting press conference for further comments about the value of the yen. He jolted the foreign exchange market when he said that the yen is unlikely to weaken further from this point. The remarks were made on June 10 during a financial affairs committee meeting in the lower house of the Diet, Japan's parliament. In a matter of hours, the Japanese currency had strengthened by 2 yen against the dollar, reaching the mid-122 level. He later corrected himself -- "I didn't say that I don't want a weaker yen, or that the yen is unlikely to fall further," Kuroda said Tuesday in an upper house session, apparently referring to nominal rates this time.

According to some analysts, the BoJ is conscious of the adverse effects created by the yen's sharp depreciation. Higher import costs stemming from a weak home currency raises food prices and may prompt consumers to turn stingy, since relatively few reap the benefits of increased stock prices.

The Bank of Japan is the central bank of Japan. The monetary policy board reviews economic conditions at home and abroad before making a policy decision. The decision is announced at the conclusion of its meeting. There is no specific time for the announcement.

The Bank of Japan Policy Board meets once a month for two days to discuss economic developments inside and outside of the country. The culmination of the meeting is the announcement of any adjustments to interest rates or other aspects of monetary policy. Like other central banks, the BoJ's goal is to ensure price stability while taking into account economic growth, employment and recommendations from the elected government while maintaining its independence. Unlike other central banks, the BoJ does not have an inflation target and has been engaged in fighting deflation. And while prices have risen thanks to soaring energy prices, these increases look fragile going forward.

The Bank announces its conclusions in a statement issued at the close of the monetary policy board meeting. The meetings are generally followed by a press conference by the Bank's governor. Needless to say, his comments are parsed carefully by the financial markets. In addition, the BoJ publishes minutes of the meeting about a month or so after the meeting but give detailed insight into the Bank of Japan's monetary policy decision making process. Every month the Bank releases a report covering trends in the Japanese economy and relevant international developments. The report summarizes recent economic indicators and gives the Bank's official position on Japanese economic growth. Because the BoJ sets monetary policy, any insight into the conclusions and assumptions the Bank is operating under can be helpful in predicting future interest rate actions.