JP: Bank of Japan Announcement


Sun Jan 21 18:00:00 CST 2018

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

Highlights
The Bank of Japan left monetary policy settings unchanged at the conclusion of its January meeting, in line with expectations. The BoJ's short-term policy rate for excess reserves remains at minus 0.1 percent while the target level for the long-term 10-year yield remains at around zero percent. Officials again voted 8-1 in favour of this decision.

The BoJ's policy framework also involves officials adjusting the pace of their purchases of Japanese government bonds in order to keep the 10-year yield close to its target level. For now, officials continue to believe that purchasing these bonds at an annual rate of Y80 trillion is consistent with meeting this target. Officials again reaffirmed their commitment to keep expanding the monetary base until the year-on-year increase in the consumer price index (excluding fresh food) exceeds their inflation target of 2.0 percent and stays above this level "in a stable manner".

Officials retain their assessment that Japan's economy is "expanding moderately" and their view that this moderate expansion is likely to continue with the support of ongoing fiscal and monetary stimulus. An improvement in the output gap and stronger inflation expectations are still expected to push inflation towards the 2.0 percent target over the next few years.

Reflecting this assessment, officials also today published updated growth and inflation forecasts, which are unchanged from those published in October. Officials retain their forecast for the year-on-year change in the consumer price index (excluding fresh food) to be 0.8 percent in the current fiscal year and 1.4 percent next fiscal year. Excluding the impact of a planned sales tax increase, this measure of inflation is forecast to be 1.8 percent in the fiscal year starting April 2019. The median forecast for real GDP growth remains 1.9 percent for the current fiscal year and 1.4 percent and 0.9 percent for the next two fiscal years.

Speaking at the post-meeting press conference, BoJ Governor Haruhiko Kuroda noted that hitting the inflation target will still take a long time but also rejected the suggestion that the target could be lowered, arguing that doing so would risk a return to deflation. He also repeated that stronger wage growth would be required to meet the inflation target.

Definition
The Bank of Japan is the central bank of Japan. The monetary policy board (MPB) reviews economic conditions at home and abroad before making a policy decision. A decision is announced eight times a year at the conclusion of its MPB meetings. There is no specific time for the announcement.

Description
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.