| Consensus | Actual | Previous | |
|---|---|---|---|
| Change | 0bp | 0bp | 0bp |
| Level | -0.1% | -0.1% | -0.1% |
Highlights
The Bank of Japan said Friday its policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve as well as large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth.
At its previous meeting in July, the board decided in an eight to one vote to make the bank's existing reference range for the 10-year bond yield more flexible, basically keeping the range of minus 0.5 percent to plus 0.5 percent, but expanded its ultimate defense lines to minus 1.0 percent and plus 1.0 percent in market operations. The July vote on the overall easing stance was unanimous.
The bank repeated its July decision that it will offer to buy 10-year Japanese government bonds at 1.0 percent every business day through fixed rate purchase operations unless it is highly likely that no bids will be submitted. Previously, the bank was offering to buy long-term bonds at a fixed rate of 0.5 percent.
By providing"greater flexibility" to its market operations, the bank hopes to avoid being forced to abandon the yield curve control policy framework when long-term interest rates come under persistent upward pressures. It also hopes to allow a natural uptick in long-term interest rates that reflects economic recovery with substantial wage hikes and mitigate the negative impact of artificially suppressing interest rates, which has paralyzed bond market functions and could negatively affect other financial markets.
Patiently Pursuing Stable 2 Percent Inflation with Monetary Easing
The bank continues to justify its accommodative monetary policy stance.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," it said."By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
This statement was first issued in April and has been repeated at every meeting since then. It also indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
In April, the bank said the board would spend the next 12 to 18 months, conducting a"broad-perspective review" of the costs and benefits of the bank's various monetary easing measures implemented in the past 25 years. Achieving price stability"has been a challenge" since late 1990s when Japan plunged into deflation, it said in April.
Governor Kazuo Ueda, who took office on April 9, has said it is likely to take some time before the 2 percent inflation target is achieved and that the cost of letting inflation exceed the target is not so large as the cost of tightening too early.
But he has also said the bank's policymakers may have enough data to judge whether it would be appropriate to lift the overnight lending rate target from minus 0.1 percent by the end of the year.
BoJ Sees Modest Economic Recovery, 'Extremely High Uncertainties'
"Japan's economy is likely to continue recovering moderately for the time being supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies," the bank said, repeating its assessment in the quarterly Outlook Report for July.
Looking ahead, the bank also repeated its recent assessment that"there are extremely high uncertainties" surrounding Japan's economy including developments in overseas economic activities and prices, commodity prices as well as domestic firms' wage- and price-setting behavior.
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the BoJ said. The yen remains relatively weak as the US Federal Reserve has been fighting inflation with rate hikes while the BoJ has maintained monetary easing.
Basic Easing Policy Stance in Place
At its two-day meeting that ended just before 1200 JST Friday (0300 GMT Friday/2300 EDT Thursday), the BoJ's nine-member board decided in a unanimous vote to maintain its overall monetary easing stance under the yield curve control framework that it adopted in September 2016, vowing to keep zero to negative interest rates"as long as necessary" to achieve its 2 percent inflation target in a stable manner.
Under the current framework, the BoJ is keeping the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent by buying"a necessary amount" of Japanese government bonds"without setting an upper limit," and to keep the overnight interest rate at minus 0.1 percent by charging 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions.
The bank also confirmed its overshooting commitment, saying,"It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner."
"The bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary," it concluded.
No Change to ETF, J-REIT Purchases
The BoJ board decided unanimously to leave the main asset purchase guidelines unchanged. Its dominant presence in the domestic stock markets has supported overall sentiment.
"The bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding," the BoJ said.
The bank will maintain the amount of outstanding of CP (commercial paper) at about 2 million yen. It will purchase corporate bonds at about the same pace as prior to the pandemic, so that their amounts outstanding will gradually return to pre-pandemic levels of about 3 trillion yen."In adjusting the amount outstanding of corporate bonds, the bank will give due consideration to their issuance conditions," it said, repeating its latest stance.
At its previous meeting in July, the board decided in an eight to one vote to make the bank's existing reference range for the 10-year bond yield more flexible, basically keeping the range of minus 0.5 percent to plus 0.5 percent, but expanded its ultimate defense lines to minus 1.0 percent and plus 1.0 percent in market operations. The July vote on the overall easing stance was unanimous.
The bank repeated its July decision that it will offer to buy 10-year Japanese government bonds at 1.0 percent every business day through fixed rate purchase operations unless it is highly likely that no bids will be submitted. Previously, the bank was offering to buy long-term bonds at a fixed rate of 0.5 percent.
By providing"greater flexibility" to its market operations, the bank hopes to avoid being forced to abandon the yield curve control policy framework when long-term interest rates come under persistent upward pressures. It also hopes to allow a natural uptick in long-term interest rates that reflects economic recovery with substantial wage hikes and mitigate the negative impact of artificially suppressing interest rates, which has paralyzed bond market functions and could negatively affect other financial markets.
Patiently Pursuing Stable 2 Percent Inflation with Monetary Easing
The bank continues to justify its accommodative monetary policy stance.
"With extremely high uncertainties surrounding economies and financial markets at home and abroad, the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions," it said."By doing so, it will aim to achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
This statement was first issued in April and has been repeated at every meeting since then. It also indicates that the bank could adjust its yield curve control framework to allow slightly higher interest rates in a gradual shift toward an eventual exit from a decade of large-scale monetary easing.
In April, the bank said the board would spend the next 12 to 18 months, conducting a"broad-perspective review" of the costs and benefits of the bank's various monetary easing measures implemented in the past 25 years. Achieving price stability"has been a challenge" since late 1990s when Japan plunged into deflation, it said in April.
Governor Kazuo Ueda, who took office on April 9, has said it is likely to take some time before the 2 percent inflation target is achieved and that the cost of letting inflation exceed the target is not so large as the cost of tightening too early.
But he has also said the bank's policymakers may have enough data to judge whether it would be appropriate to lift the overnight lending rate target from minus 0.1 percent by the end of the year.
BoJ Sees Modest Economic Recovery, 'Extremely High Uncertainties'
"Japan's economy is likely to continue recovering moderately for the time being supported by factors such as the materialization of pent-up demand, although it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies," the bank said, repeating its assessment in the quarterly Outlook Report for July.
Looking ahead, the bank also repeated its recent assessment that"there are extremely high uncertainties" surrounding Japan's economy including developments in overseas economic activities and prices, commodity prices as well as domestic firms' wage- and price-setting behavior.
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the BoJ said. The yen remains relatively weak as the US Federal Reserve has been fighting inflation with rate hikes while the BoJ has maintained monetary easing.
Basic Easing Policy Stance in Place
At its two-day meeting that ended just before 1200 JST Friday (0300 GMT Friday/2300 EDT Thursday), the BoJ's nine-member board decided in a unanimous vote to maintain its overall monetary easing stance under the yield curve control framework that it adopted in September 2016, vowing to keep zero to negative interest rates"as long as necessary" to achieve its 2 percent inflation target in a stable manner.
Under the current framework, the BoJ is keeping the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent by buying"a necessary amount" of Japanese government bonds"without setting an upper limit," and to keep the overnight interest rate at minus 0.1 percent by charging 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions.
The bank also confirmed its overshooting commitment, saying,"It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner."
"The bank will continue to maintain stability of financing, mainly of firms, and financial markets, and will not hesitate to take additional easing measures if necessary," it concluded.
No Change to ETF, J-REIT Purchases
The BoJ board decided unanimously to leave the main asset purchase guidelines unchanged. Its dominant presence in the domestic stock markets has supported overall sentiment.
"The bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding," the BoJ said.
The bank will maintain the amount of outstanding of CP (commercial paper) at about 2 million yen. It will purchase corporate bonds at about the same pace as prior to the pandemic, so that their amounts outstanding will gradually return to pre-pandemic levels of about 3 trillion yen."In adjusting the amount outstanding of corporate bonds, the bank will give due consideration to their issuance conditions," it said, repeating its latest stance.
Market Consensus Before Announcement
The Bank of Japan's policy board is expected to vote unanimously to maintain its overall monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and relatively large asset purchases to continue seeking stable 2 percent inflation and support sustainable wage growth. The board is likely to repeat its recent statement that"the bank will patiently continue with monetary easing while nimbly responding to developments in economic activity and prices as well as financial conditions." The board has also been debating the costs and benefits of the yield curve control policy framework that was adopted in September 2016 and the negative overnight interest rate target introduced in January 2016.
In July the board decided in an eight to one vote to make the bank's existing reference range for the 10-year bond yield more flexible, basically keeping the range of minus 0.5 percent to plus 0.5 percent, but expanded its ultimate defense lines to minus 1.0 percent and plus 1.0 percent in market operations.
The focus is on the board's median CPI and GDP forecasts for fiscal 2023, 2024 and 2025 as well as its risk analysis in the quarterly Outlook Report to be released after the Oct. 30-31 meeting. Further ahead, watch for public comments in early December to see whether business leaders will indicate a continued high pace of wage hikes for fiscal 2024 starting in April. That will be the earliest point for the BoJ board to judge whether it will be safe to lift the overnight lending rate target from minus 0.1 percent.
In July the board decided in an eight to one vote to make the bank's existing reference range for the 10-year bond yield more flexible, basically keeping the range of minus 0.5 percent to plus 0.5 percent, but expanded its ultimate defense lines to minus 1.0 percent and plus 1.0 percent in market operations.
The focus is on the board's median CPI and GDP forecasts for fiscal 2023, 2024 and 2025 as well as its risk analysis in the quarterly Outlook Report to be released after the Oct. 30-31 meeting. Further ahead, watch for public comments in early December to see whether business leaders will indicate a continued high pace of wage hikes for fiscal 2024 starting in April. That will be the earliest point for the BoJ board to judge whether it will be safe to lift the overnight lending rate target from minus 0.1 percent.
Definition
The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.
Description
The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
