JP: Bank of Japan Announcement


Thu Apr 26 22:03:00 CDT 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 April 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 also today published updated growth and inflation forecasts. Officials' median forecast the year-on-year change in the consumer price index (excluding fresh food) is 1.3 percent in the current fiscal year, down from a forecast of 1.4 percent previously, and 2.3 percent next fiscal year, unchanged from their previous forecast. Excluding the impact of a planned sales tax increase, this measure of inflation is forecast to be 1.8 percent in the fiscal years starting April 2019 and April 2020. Growth forecasts have been revised higher in response to recent positive activity data, with the median forecast for real GDP growth 1.6 percent for the current fiscal year., up from 1.4 percent previously, and 0.8 percent for next fiscal year, up from 0.7 percent previously. Officials, however, omitted any timeframe for when they expect to meet the 2.0 percent inflation target.

Speaking at the post-meeting press conference, BoJ Governor Haruhiko Kuroda was questioned about this omission. He stressed that there was no shift in the BOJ's commitment to meeting this target and no plans to reduce policy stimulus in the near-term. Instead, he argued that the timeframe for meeting the target was just a forecast rather than a driver of policy decision and that the change in the statement was made in order to prevent misunderstanding in markets. He also argued that there was still a "good chance" that the target would be met sometime around the fiscal year starting April 2019.

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.