JP: Bank of Japan Announcement

Wed Jul 19 19:00:00 CDT 2017

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 July 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. Officials also announced today that they have pushed back the expected timing for inflation to reach its target level.

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 have also published updated growth and inflation forecasts. The median forecast for real GDP growth has been revised from 1.6 percent to 1.8 percent for the fiscal year starting April 2017, from 1.3 percent to 1.4 percent for the fiscal year starting April 2018, and left unchanged at 0.7 percent for the fiscal year starting April 2019. Officials also upgraded their assessment of economic conditions, arguing that the economy is "expanding moderately". The year-on-year change in the consumer price index (excluding fresh food) is now forecast to be 1.1 percent in the current fiscal year (down from the previous forecast of 1.4 percent) and to be 1.5 percent next fiscal year (down from the previous forecast of 1.7 percent). 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 (down from the previous estimate of 1.9 percent).

Based on these revised inflation forecasts, the BoJ now expects to meet its inflation target sometime "around" the fiscal year starting April 2019, after previously estimating that this target would be reached sometime "around" the fiscal year starting in April 2018. The expected timing for the inflation target to be reached has now been pushed back six times since officials began implementing aggressive policy easing in 2013, highlighting the persistence of weak price pressures in the domestic economy. Officials also argue that downside risks to the inflation target continue to outweigh upside risks.

Speaking at the regular post-meeting press conference, BoJ Governor Haruhiko Kuroda noted that companies had been cautious about raising prices in recent times but expressed confidence this would change. He also stressed that despite the recent stability in policy settings, adjustments would be made if considered necessary to maintain momentum towards meeting the inflation target.

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.