Bank of Japan Retains Status Quo in Penultimate Board Meeting of 2015

November 19, 2015

The one and only tweak of quantitative stimulus occurred at the end of October 2014, when the Board raised the targeted annual growth in Japan’s monetary base and planned asset purchases to JPY 80 trillion.  Policymakers have managed to stick to those parameters and reaffirmed them at the November policy meeting.  At the prior meeting on October 30th, which coincided with a full review of the economic outlook including likeliest path as well as baseline forecasts risks, projected growth and inflation was revised downward to account for weaker energy prices.  The latest forecasts of real GDP and core CPI, and previous ones unveiled at 3-month intervals, are shown below.

GDP FY2015 FY2016 FY2017 CPI FY2015 FY2016 FY2017
Oct 1.2% 1.4% 0.3%   0.1% 1.4% 1.8%
Jul 1.7 1.5 0.2   0.7 1.9 1.8
Apr 2.0 1.5 0.2   0.8 2.0 1.9
Jan 2.1 1.6     1.0 2.2  

 

Today’s statement had just two differences from the previous one.  The first was the deletion of the prior observance of “somewhat cautious developments” relating to business sentiment, presumably a reaction to stronger-than-assumed planned capital spending revealed in this quarter’s Tankan survey.  The other modification was to modify the long-held assertion that inflation expectations seem to be rising with a new clause noting “some indicators have recently shown relatively weak developments.”  The most hawkish member of the Board, Kiuchi, again got no support from colleagues on a proposal to scale back monthly asset buying to JPY 45 billion.

At his press conference, Kuroda put little stock in the occurrence of GDP contractions in both 2Q and 3Q.  He said the quarters had been very different despite similar GDP declines because an inventory rundown, which tends to bode well for future growth, explained the 3Q result.  As always, future additional stimulus was not ruled out, and Kuroda identified a couple of assumed developments, which — should they not evolve — could lead to a rethink of policy. 

  • Wage inflation hasn’t accelerated as much as needed or as much as strong trends in earnings and unemployment would seem to warrant.
  • The longer inflation is around zero, the greater the chance that expected medium-term inflation sags.
  • Energy prices have fallen more than expected.  It’s assumed this is an overshoot that will be partly reversed in the future.
  • Expected near-term inflation may have slipped even though the underlying trend of prices (i.e., CPI minus energy and fresh food) has been rising.

Market players are split over whether the BOJ will change policy at the time of the next unveiling of forecasts, which is scheduled for January.

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

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