JP: Bank of Japan Announcement

June 14, 2017 07:00 CDT

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

The Bank of Japan left monetary policy settings unchanged at the conclusion of its June 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 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 inflation is on track to hit 2.0 percent sometime "around" the fiscal year starting in April 2018, with today's statement noting this assessment is based on an improvement in the output gap and a rise in inflation expectations. Officials currently forecast core inflation to average 1.4 percent in the fiscal year starting April 2017, 1.7 percent in the fiscal year starting April 2018 and (excluding the impact of a planned sales tax increase) then 1.9 percent in the fiscal year starting April 2019. Today's statement also notes officials' view that Japan's economy is likely to continue its "moderate expansion", with fiscal stimulus and accommodative monetary policy supporting both business and household spending and an improved global outlook driving moderate exports growth.

At his post-meeting press conference, BoJ Governor Haruhiko argued that price pressures in the Japanese economy are still likely to pick up over time but indicated that recent data did not suggest that an upward revision to inflation forecasts was required for now. In particular, he noted that wage growth remained modest despite the output gap improvement and stressed that it will take time to change consumers' "deflationary mindset". Governor Kuroda also discussed the implications of higher policy rates in the United States, noting that these would likely be limited over the near-term and that any impact on Japan could be managed.

Governor Kuroda's comments suggest policy stability is set to continue at least in coming months. He noted that it would be "misleading" to discuss an exit plan for the current program of asset purchases and expressed confidence that officials would be able to manage the impact of these purchases on the BOJ's balance sheet. The BOJ's next policy meeting will take place in July, with growth and inflation forecasts also to be revised at this meeting.

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.