Bank of Japan

April 27, 2017

After meeting for five hours and sixteen minutes over two days, the BOJ Policy Board released a monetary policy statement that reads the same verbatim as the prior March document including footnoted text explaining the dissenting views of committee hawks Sato and Kiuchi.

A new quarterly Outlook for Economic Activity and Prices was published concurrently that updates growth and core CPI forecasts, lays out the Board’s baseline view, enumerates risks factors associated with the forecast, and defends the Board’s decisions to leave the interest rate on Policy-Rate Balances at -0.1% on accounts that financial institutions hold with the central bank, as well as open-ended JGB purchases of 80 trillion yen a year in order to guide the 10-year yield to stay very close to 0.0%.

The Outlook¬†also reads very similarly to the prior one issued in January. Qualitatively, the latest numerical forecasts are presented as “more or less” the same as before. Quantitatively, projected growth was bumped up by 0.1 percentage point (ppt) to 1.6% in fiscal 2017 and by 0.2 ppts to 1.3% next year but set at only 0.7% in fiscal 2019. Core inflation was bumped down 0.1 ppt to 1.4% for this fiscal year, left unchanged at 1.7% in fiscal 2018 and assigned a consumption tax-adjusted likely increase of 1.9% in fiscal 2019. Projected GDP growth in the period was revised higher, but officials conceded disappointment with wages, which have not risen faster in response to a tightening labor market. Longer-term inflation expectations have also proven unresponsive to the central bank’s ultra-accommodative policy that was launched four years ago this month.

Initially officials expected 2% sustainable core inflation to be achieved within two years. With little progress after twice that amount of time, the Board majority still believes that full results are only a matter of waiting longer and thus remain determined not to diminish monetary stimulus until the goal is considered fully achieved.

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

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