Bank of Japan Policy Left Unchanged

February 14, 2011

After meeting for five hours and 52 minutes over two days, the Policy Board agreed unanimously to retain a virtual zero interest rate monetary policy stance (ZIRP).  Since October 5, the target on uncollateralized overnight call money has been zero to 0.1%.  The target had previously been around 0.1% since December 2008, and it has not exceeded 0.5% since September 1995.  Monetary officials have moreover promised to maintain a state of virtual ZIRP until convinced that medium- to long-term price stability is a hand and define such as CPI inflation excluding seasonal foods of less than 2% and averaging around 1%.  The final prong of the central bank’s comprehensive monetary easing consists of asset purchases to encourage a decline in long-term yields and various risk premia.  That program was expanded in early October to JPY 35 trillion with the addition of JPY 5 trillion (JPY 3.5 trillion of which is JGBs and the rest involves discount bills, commercial paper and corporate bonds).

This week’s meeting did not expand the asset purchase program any further, nor was the monthly outright amount of JGB buying modified.

A statement from the Policy Board today upgrades exports, industrial production, and the overall assessment to “gradually emerging from a deceleration phase.”  At the prior meeting on January 25, officials had retained the view that the “recovery seems to be pausing.”  After the January meeting, officials had revised their GDP projection to 3.3% this fiscal year, 1.6% in fiscal 2011, and 2.0% in fiscal 2012.  Core CPI inflation was penciled in at minus 0.3% this financial year, 0.3% in FY11 and 0.% in FY12.  Forecasts are revised on a quarterly basis.  The next scheduled meeting is set for March 14-15.  New growth and price forecasts are not due until April.

Industrial production, which was upgraded, rose 3.3% in December after climbing 1.0% in November.  Output nonetheless dropped by 1.6% in 4Q after a decline of 1.8% in 3Q10.  Capacity usage rose 3.0% in December, while industrial capacity slid by 0.2%.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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