Bank of Japan Review

January 31, 2017

By another 7-2 vote with Kiuchi and Sato again dissenting, monetary policymakers voted not to change its interest rate targets, the size of quantitative easing, the medium-term inflation target, guidance governing future policy decisions, or its assessment of Japanese growth and inflation conditions and prospects. This result was expected.

The statement on monetary policy retains a minus 0.1% interest rate on the policy-rate balances that financial institutions hold with it and a 10-year JGB yield target of around zero percent. About 80 trillion yen per year of JGBs will continue to be bought. Annual purchases of ETFs will be about JPY 6 trillion and J-REITs of about JPY 90 billion. About JPY 2.2 trillion of commercial paper and JPY 3.2 trillion of corporate bonds will be kept. Deadlines were extended a year for new applications for such measures as the Fund-Provisioning Measures to spur bank lending and strengthen growth and to support banks in areas affected by the 2011 earthquake. Regarding the view on the economy, officials anticipate continuing above-potential economic growth and core inflation initially only barely above 0 but eventually rising to 2% in fiscal 2018 when the output gap is eliminated. The estimated potential GDP growth rate is assumed to be 0.5% a year.

A new quarterly Outlook for Economic Activity and Prices was released. It bumps up projected GDP growth but leaves price forecasts essentially unchanged. The latest and previous forecasts are shown in the table below. This report not only details the assumptions of the baseline forecast but runs down the list of possible upside and downside risks to growth and prices surrounding the baseline view. As the board has always done after scheduled policy meetings, an open-ended duration is attached to the current policy. To wit, quantitative and qualitative easing with yield curve control will continue, “aiming to achieve the price stability target of 2%, as long as it is necessary for maintaining that target in a stable manner.”

GDP, %

January 2017

October 2016

July 2016

Fiscal 2016

1.4%

1.0%

1.0%

Fiscal 2017

1.5%

1.3%

1.3%

Fiscal 2018

1.1%

0.9%

0.9%

 

April 2016 1.2% 0.1% 1.0%
Januar 2016 1.5% 0.3%
Core CPI

Januar 2017

October 2016

July 2016

Fiscal 2016

-0.2%

-0.1%

0.1%

Fiscal 2017

1.5%

1.5%

1.7%

Fiscal 2018

1.7%

1.7%

1.9%

April 2016  0.5% 1.7% 1.9%
Januar 2016  0.8% 1.8%
October 2015  1.4% 1.8%
July 2015 1.9% 1.8%
April 2015 2.0% 1,9%
Januar 2015 2.2%

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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