Bank of Japan Left Policy the Same

April 8, 2015

At this week’s BOJ Board meeting, the overnight interest rate target was retained at 0.0-0.1%.  Rates continue to be pinned by a program of asset purchases totaling JPY 80 trillion of JGBs per year in order to boost Japan’s monetary base at a similar pace.  The central bank’s balance sheet rose by 22.4 trillion yen during the first quarter of 2015, reaching JPY 322.6 trillion at the end of fiscal 2014.  In the year between the first quarters of 2014 and 2015, the monetary base rose 36.4%.  M2 money in January-February was 34.5% higher than a year before, and bank lending rose by 2.5%. 

A statement released today revealed a more provocative dissent by the nine-person Board’s most hawkish member, Takahide Kiuchi.  He sought to cut quantitative stimulus (QQE) by 44% to a pace of JPY 45 trillion per year and to maintain QQE not for as long as it is necessary for maintaining a 2.0% inflation target in a stable manner, which is the majority view, but rather  only “as long as each of the policy measures is deemed appropriate under flexible policy conduct based on the examination from the two perspectives of the monetary policy framework.” 

The economic assessment in today’s statement was almost exactly the same as after the March meeting.  On growth, the only change was an additional phrase that “business sentiment has generally stayed at a favorable level,” a conclusion based on the latest Tankan corporate survey.  On inflation, the pace of likely core CPI “for the time being” was revised to zero from a range of zero to 0.5%.  It had been revised lower in February and March as well.  The outlooks of continuing moderate growth, zero inflation in the near term, and rising inflation later was not changed. 

Governor Kuroda’s post-statement press conference accentuated the positive, as he defended the current accommodative stance as providing neither too little nor too much support.  The lower-than-anticipated trajectory of inflation was ascribed entirely to plunging oil prices, and Kuroda maintained optimism that rising inflation would resume by autumn and reach target by 2Q16.

A second April meeting of the BOJ Board is scheduled for the 30th, and afterward the semi-annual Outlook for Growth and Prices will be released with new macroeconomic forecasts.  In coordination with the last such publication in end-October, QQE was expanded.  A minority of analysts think that might happen again, but Kuroda’s press conference failed to hint at such a possibility happening so soon.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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