Bank of Japan Policy Decision: Steady as She Goes

May 21, 2014

Governor Kuroda and is eight fellow board members were on more solid ground when they met this month and chose not to change the stimulative qualitative and quantitative monetary policy that was launched in April 2013 but not modified since then.  First-quarter GDP growth of 5.9% annualized far exceeded expectations, and indications of April activity, such as a smaller-than-forecast 5.4% on-year drop in supermarket sales reported today, have revealed much more consumer resilience than was the case when the national consumption tax was raised to 5% from 3% in 1997.  BOJ leaders promise to ease further but only if needed.  So far, they can claim that hasn’t become necessary.

After meeting for four hours forty-six minutes over two days, the BOJ board voted 9-0 to retain policy settings of 0.0-0.1% on the overnight money rate and continuing asset purchases of mostly but not exclusively long-term JGBs that will boost the monetary base by 60-70 trillion yen per year and double the JGB portfolio’s average maturity to seven years.  Officials released a statement that left the duration of the present policy open-ended until the 2% core inflation goal is secured and expressed confidence that such will likely happen by next spring.  The view of business investment (“has increased moderately”) was upgraded from “pickup becoming increasingly evident”  , while that of public investment (“has more or less leveled off at a high level”) was downgraded from “continued to increase.”  The overall forecast of moderate economic recovery and core inflation of 1.25% for now but rising later remained intact.

The June Policy Board meeting is scheduled for the 12-13th.

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

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