| Consensus | Actual | Previous | |
|---|---|---|---|
| Change | 0bp | 0bp | 0bp |
| Level | -0.1% | -0.1% | -0.1% |
Highlights
Key points from the Bank of Japan's policy decision at its Dec. 18-19 meeting:
--BoJ maintains easing stance under yield curve control framework after making it more flexible in Oct, July
--BoJ Repeats: To 'patiently' pursue stable 2 percent inflation
The Bank of Japan said Tuesday its policy board decided unanimously, as widely expected, to maintain its seven-year-old yield curve control framework and retain its guidance that it will"patiently continue with monetary easing" in order to"achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
To this effect, the board decided in a unanimous vote to keep the targets of minus 0.1 percent for the short-term policy rate and"around zero percent" for the 10-year bond yield, the latter of which was adjusted again in October, after having been made flexible in July, to allow an upward swing to around 1.0 percent in light of higher yields in the U.S. bond market at the time.
The move to make the long end of the yield curve control framework"more flexible" twice in three months is regarded by some as a gradual step toward phasing out the yield curve control framework adopted in September 2016.
The market focus has been on when the central bank will end its negative interest rate policy introduced in January 2016. The BoJ charges 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions, which is designed to encourage banks to lend more, but it is unpopular among lenders as it squeezes their profit margins.
BoJ policymakers are largely expected to maintain the current easing stance for now as they are likely to refrain from raising interest rates at least until April, when they may be able to see a clearer sign whether wages will continue rising substantially in the next fiscal year. The results of annual wage talks between major firms and their trade unions won't be available until mid-March and indications of how that will influence smaller businesses, which employ about 70 percent of the workforce, are likely to emerge after the April 1 start of fiscal 2024.
In the previous meeting in October, the board decided in an 8-to-1 vote to make the yield curve control framework"more flexible" by calling its desired 1 percent upper end of the 10-year Japanese government bond (JGB) yield a"reference," instead of a definite line that the bank had been trying to defend with market operations. It also discontinued the range for the long bond yield, which had been set between minus 0.5 percent and plus 0.5 percent.
The flexibility decision means the bank"will control the yields mainly through large-scale JGB purchases and nimble market operations," a stance confirmed at the December meeting.
In October, the bank dropped its July decision to 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. This type of market operation"will have strong positive effects, but could also entail large side effects," the bank said.
By providing"greater flexibility" to its market operations, the bank hopes to avoid being forced to abandon the yield curve control policy framework should 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% Inflation with Monetary Easing
The bank stressed that its accommodative monetary policy stance is necessary to complete its mission that began in January 2013.
"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, repeating its recent mantra."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.
Governor Kazuo Ueda told a post-meeting news conference on Oct. 31 that the decision to make the policy framework more flexible was partly due to an upward revision to the board's inflation forecast but largely due to upward pressures on the JGB yields from overseas bond markets.
In his semi-annual report to parliament earlier this month, Ueda said it is was not yet time to shift the bank's policy stance toward tightening."The Bank considers that sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point, and that it is important to closely monitor whether a virtuous cycle between wages and prices will intensify," he said.
BoJ See 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 its quarterly Outlook Report for October.
"Thereafter, as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate," which is estimated to be zero to 0.5 percent, the bank said.
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, also repeating its past statements.
Basic Easing Policy Stance in Place
At its two-day meeting that ended before 1200 JST Tuesday (0300 GMT Tuesday/2300 EST Monday), the BoJ's nine-member board decided in a unanimous vote on ways to manage the yield curve control framework and its guideline on asset purchases.
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 will regard the upper bound of 1.0 percent for 10-year JGB yields as a reference in its market operations, and in order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, it will continue with large-scale JGB purchases and make nimble responses for each maturity by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations and the Funds-Supplying Operations against Pooled Collateral," the bank said.
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 maintain the main asset purchase guidelines. The bank uses its dominance in domestic shareholdings to prop up the market sentiment, hoping to have a positive impact on economic activity.
"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.
--BoJ maintains easing stance under yield curve control framework after making it more flexible in Oct, July
--BoJ Repeats: To 'patiently' pursue stable 2 percent inflation
The Bank of Japan said Tuesday its policy board decided unanimously, as widely expected, to maintain its seven-year-old yield curve control framework and retain its guidance that it will"patiently continue with monetary easing" in order to"achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases."
To this effect, the board decided in a unanimous vote to keep the targets of minus 0.1 percent for the short-term policy rate and"around zero percent" for the 10-year bond yield, the latter of which was adjusted again in October, after having been made flexible in July, to allow an upward swing to around 1.0 percent in light of higher yields in the U.S. bond market at the time.
The move to make the long end of the yield curve control framework"more flexible" twice in three months is regarded by some as a gradual step toward phasing out the yield curve control framework adopted in September 2016.
The market focus has been on when the central bank will end its negative interest rate policy introduced in January 2016. The BoJ charges 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions, which is designed to encourage banks to lend more, but it is unpopular among lenders as it squeezes their profit margins.
BoJ policymakers are largely expected to maintain the current easing stance for now as they are likely to refrain from raising interest rates at least until April, when they may be able to see a clearer sign whether wages will continue rising substantially in the next fiscal year. The results of annual wage talks between major firms and their trade unions won't be available until mid-March and indications of how that will influence smaller businesses, which employ about 70 percent of the workforce, are likely to emerge after the April 1 start of fiscal 2024.
In the previous meeting in October, the board decided in an 8-to-1 vote to make the yield curve control framework"more flexible" by calling its desired 1 percent upper end of the 10-year Japanese government bond (JGB) yield a"reference," instead of a definite line that the bank had been trying to defend with market operations. It also discontinued the range for the long bond yield, which had been set between minus 0.5 percent and plus 0.5 percent.
The flexibility decision means the bank"will control the yields mainly through large-scale JGB purchases and nimble market operations," a stance confirmed at the December meeting.
In October, the bank dropped its July decision to 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. This type of market operation"will have strong positive effects, but could also entail large side effects," the bank said.
By providing"greater flexibility" to its market operations, the bank hopes to avoid being forced to abandon the yield curve control policy framework should 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% Inflation with Monetary Easing
The bank stressed that its accommodative monetary policy stance is necessary to complete its mission that began in January 2013.
"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, repeating its recent mantra."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.
Governor Kazuo Ueda told a post-meeting news conference on Oct. 31 that the decision to make the policy framework more flexible was partly due to an upward revision to the board's inflation forecast but largely due to upward pressures on the JGB yields from overseas bond markets.
In his semi-annual report to parliament earlier this month, Ueda said it is was not yet time to shift the bank's policy stance toward tightening."The Bank considers that sustainable and stable achievement of the price stability target is not yet envisaged with sufficient certainty at this point, and that it is important to closely monitor whether a virtuous cycle between wages and prices will intensify," he said.
BoJ See 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 its quarterly Outlook Report for October.
"Thereafter, as a virtuous cycle from income to spending gradually intensifies, Japan's economy is projected to continue growing at a pace above its potential growth rate," which is estimated to be zero to 0.5 percent, the bank said.
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, also repeating its past statements.
Basic Easing Policy Stance in Place
At its two-day meeting that ended before 1200 JST Tuesday (0300 GMT Tuesday/2300 EST Monday), the BoJ's nine-member board decided in a unanimous vote on ways to manage the yield curve control framework and its guideline on asset purchases.
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 will regard the upper bound of 1.0 percent for 10-year JGB yields as a reference in its market operations, and in order to encourage the formation of a yield curve that is consistent with the above guideline for market operations, it will continue with large-scale JGB purchases and make nimble responses for each maturity by, for example, increasing the amount of JGB purchases and conducting fixed-rate purchase operations and the Funds-Supplying Operations against Pooled Collateral," the bank said.
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 maintain the main asset purchase guidelines. The bank uses its dominance in domestic shareholdings to prop up the market sentiment, hoping to have a positive impact on economic activity.
"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 decide to retain its guidance that it will"patiently continue with monetary easing" in order to"achieve the price stability target of 2 percent in a sustainable and stable manner, accompanied by wage increases." To this effect, it is likely to keep the targets of minus 0.1 percent for the short-term policy rate and"around zero percent" for the 10-year bond yield, the latter of which was adjusted in October to allow an upward swing to around 1.0 percent in light of higher yields in the U.S. market.
BoJ policymakers are expected to maintain the current easing stance for now as they are likely to refrain from raising interest rates at least until April, when they may be able to see a clearer sign that wages will continue rising substantially in the next fiscal year.
Since the long end of the yield curve control framework has been made more"flexible" twice in three months this year (which some took as a gradual step toward phasing out the yield curve control framework), the market focus is on when the central bank will end its negative interest rate policy introduced in January 2016. The BoJ charges 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions, which is designed to encourage banks to lend more, but it is unpopular among lenders as it squeezes their profit margins.
BoJ policymakers are expected to maintain the current easing stance for now as they are likely to refrain from raising interest rates at least until April, when they may be able to see a clearer sign that wages will continue rising substantially in the next fiscal year.
Since the long end of the yield curve control framework has been made more"flexible" twice in three months this year (which some took as a gradual step toward phasing out the yield curve control framework), the market focus is on when the central bank will end its negative interest rate policy introduced in January 2016. The BoJ charges 0.1 percent interest on a part of cash reserves parked at the bank by financial institutions, which is designed to encourage banks to lend more, but it is unpopular among lenders as it squeezes their profit margins.
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.
