No Change in Bank of Japan Policy Settings

June 15, 2012

The Bank of Japan Policy Board left its interest rate and asset buying targets unchanged after its five hour one minute-long meeting over two days. 

  • The overnight uncollateralized interest rate has been zero to 0.1% since October 5, 2010 and has not exceeded 0.5% since September 1995.
  • The asset purchase plan was raised earlier this year in February and April.  The latter instance involved a 10 trillion yen boost to JGB purchases, mitigated by a 5 trillion reduction in fixed rate funds-supplying operations against pooled collateral.  Overall asset buying thus rose by JPY 5 trillion to a total of JPY 70 trillion, and this limit will continue to be the size of the program.

Today’s statement upgraded the assessment of the economy from “shifting toward a pick up” to “Japan’s economic activity has started picking up moderately.” 

Domestic demand remains firm mainly supported by reconstruction-related demand.  Public investment has been increasing.  Business fixed investment has been on a moderate increasing trend with corporate profits improving. Against the background of improvement in consumer sentiment, private consumption has continued to increase moderately due to the effects of measures to stimulate demand for automobiles. Housing investment has generally been picking up. Exports have shown signs of a pick-up. Reflecting these developments in demand at home and abroad, production has started picking up moderately….. The year-on-year rate of change in the CPI is expected to remain at around 0 percent for the time being.

Despite this more upbeat tone, the statement also speaks of external risks out of Europe and the continuing challenge of overcoming deflation.  The statement therefore reiterates a promise to “do its utmost to ensure the stability of Japan’s financial system, while giving particular attention to developments in global financial markets.”  The statement doesn’t complain about yen strength, but a readiness to use intervention to prevent undue appreciation continues to be a theme in comments by officials.

The next policy meeting is scheduled for July 11th and 12th.

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

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