Bank of Japan Leaves Main Policy Settings Unchanged but Enhances Growth-Supporting Funding Facility

March 13, 2012

The Bank of Japan 9-person Board met for seven hours and 54 minutes on Monday and Tuesday, voting unanimously to keep the overnight money rate target range at zero to 0.1% and rejecting by an 8-1 vote member Miyao’s proposed JPY 5 trillion increase in asset purchases from JPY 65 trillion to JPY 70 trillion. 

A statement from the Policy Board called Japan’s economy “more or less flat” with “some signs of a pick up.”  Investment and personal consumption are performing better, while exports and industrial production continue to lag.  Core CPI inflation, which in Japan’s case includes energy, is running around zero.  Without energy, such would be down about 1% on year.  Officials expect their definition of core inflation to stay at zero for the time being, requiring a continuing need for their “powerful” monetary degree of ease, which will not be reined in until a 1% rate of core CPI is in sight.  Strengthening exports and reconstruction spending following last year’s disasters are seen leading to the gradual  emergence of a moderate recovery path in the economy.

The latest statement does not have anything to say about the yen, which weakened considerably since the previous Board meeting in February.  BOJ and government officials have for some time been very outspoken in expressing their hope for a softer exchange rate.

While not making any changes to the main monetary policy settings, officials did enhance a growth-supporting funding facility that was introduced in June 2010 to aid selected areas suffering from the Great Recession.  Because of this enhancement, the BOJ’s statement is longer than usual and accompanied by two supplementary documents.  The enhancements increase the size of the aid from JPY 3.5 trillion to JPY 5.5 trillion, spell out how the overall increase is to be earmarked, and lengthen the period of operation for this facility to March 2014 from March 2012 intended initially.

The next Board meeting will be on April 9-10.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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