The Bank of Japan left monetary policy settings unchanged at the conclusion of its meeting today, in line with expectations. As part of its recently adopted policy framework, which involves targeting the shape of the yield curve, 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 voted 7-2 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 also 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".
This decision to keep policy settings on hold again reflects officials' assessment that Japan's economy remains on a "moderate recovery trend". They expect accommodative financial conditions and fiscal spending to support domestic demand, and improved growth in the global economy to boost Japan's exports. Officials' views on the inflation outlook are little changed, forecasting the year-on-year increase in headline inflation to increase gradually towards 2.0 percent as the drag from energy prices fades and the output gap improves.
At the post-meeting press conference BoJ Governor Haruhiko Kuroda sent a clear signal that recent policy stability will likely continue indefinitely. In particular, he rejected a suggestion that policy rates would need to be hiked if the year-on-year increase in CPI ex fresh food accelerated to 1.0 percent, noting that officials consider a range of indicators when deciding what their monetary policy target should be. He also stressed that higher policy rates in the United States and elsewhere would not necessarily mean that Japanese rates also need to rise.
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.
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.