Bank of Japan’s Last Meeting Before the Consumption Tax Hike Ends Without a Policy Change

March 11, 2014

Officials decided yet again that a year-old policy is achieving desired results and showing adequate progress.  The policy commits to

  • Buying JGBs at an annual pace of JPY 50 trillion.
  • Running a virtual zero interest rate policy with an objective overnight rate of 0.0-0.1%.
  • Doubling the average maturity of the BOJs JGB portfolio to seven years.
  • Increasing ETFs and J-REITs by JPY 1 trillion and JPY 30 billion per year.
  • Maintaining about JPY 2.2 trillion of commercial paper and JPY 3.2 trillion of corporate bond holdings.
  • Securing 2.0% core inflation by March 2015.
  • Continuing aggressive quantitative and qualitative easing on an open-ended basis beyond March 2015 if necessary until officials are sure the 2% inflation goal can be maintained in a stable manner.

A statement released by the BOJ Board predicts, as it has before, continuing moderate recovery, looking past a possible lull in the second quarter.  Note is made that “industrial production has been increasing at a somewhat accelerated pace” but also that exports, which previously were said to be “generally picking up,” “have recently leveled off more or less.”  Other aspects of the outlook were left unchanged, including a characterization that financial conditions are “accommodative,” the observance of “rising inflation expectations,” and a prediction that core inflation “is likely to be around 1.25% for some time” once one excluded the upward direct effect of the coming sales tax hike next month.

The Bank of Japan has come under increasing criticism from private-sector analysts for not being more pre-emptive by not making policy even more stimulative to help offset the drag of the consumption tax hike.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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