JP: Bank of Japan Announcement

Tue Oct 31 07:00:00 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 October 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 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 have also published updated growth and inflation forecasts. Japan's economy is projected to "expand moderately" with the median forecast for real GDP growth revised from 1.8 percent to 1.9 percent for the fiscal year starting April 2017, left unchanged at 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, however, now expect inflation in the near-term will be weaker than previously anticipated, mainly reflecting the impact of lower mobile phone charges. The year-on-year change in the consumer price index (excluding fresh food) is now forecast to be 0.8 percent in the current fiscal year (down from the previous forecast of 1.1 percent) and to be 1.4 percent next fiscal year (down from the previous forecast of 1.5 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 (unchanged from the previous estimate). Based on these revised inflation forecasts, the BoJ still expects to meet its inflation target sometime "around" the fiscal year starting April 2019.

Speaking in the post-meeting press conference, BoJ Governor Haruhiko Kuroda pointed to a recent improvement in wages growth but noted that firms remain reluctant to pass on higher costs. He also made it clear that policy settings will remain very accommodative for the foreseeable future, noting that officials will only contemplate an "exit plan" once the inflation target is "in sight".

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.