Bank of Japan Elects to Do Nothing New after Mid-June Meeting

June 16, 2016

The central bank’s inaction elicited a very negative market reaction that sent Japan’s stock market down 3.1%, pinned the JGB yield at negative 0.21%, and lifted the yen to a multi-year high against the dollar of 103.55.  The released statement of the Policy Board after deliberations totaling 4 hours and 9 minutes over two days committed the central bank to more of the same in policy settings:  quantitative and qualitative stimulus to grow the monetary base by 80 trillion yen a year and the JGB portfolio to an average maturity of 7-12 years, plus a 3-tiered interest rate structure including a negative 0.10% BOJ policy rate.  Discussion in the statement of Japan’s economic conditions and prospects were hardly modified from those in the previous late-April statement, with the notable exception that officials now expect core inflation in the near term to be slightly negative to about zero.  The prior indication had been simply around zero.  There are a number of risks, including the possibility of a bad outcome in next week’s vote in the U.K. on EU membership.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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