Bank of Japan Policy Settings Unchanged… New Forecasts Released

July 15, 2020

The metrics of the Bank of Japan’s quantitative and qualitative easing with yield curve control were not changed at the latest monetary policy review.¬† Since September 2016, the short-term policy rate target has been -0.1%, and the target for the 10-year JGB yield has been around zero percent. The BOJ continues to inject liquidity on a massive scale¬† through purchases of government debt, ETFs, J-REITs, corporate bonds, and commercial paper. There is also a special program to support financing in response to the novel coronavirus (COVID-19).

This week’s BOJ policy review coincided with a quarterly update of the Outlook for Economic Growth and Prices in which projected growth and inflation in fiscal 2020 were revised downward to -4.7% and -0.6%, respectively. “The pace of improvement is expected to be only moderate while the impact of COVID-19 remains worldwide. Thereafter, as the impact subsides globally, the economy is projected to keep improving further with overseas economies returning to a steady growth path.” The somewhat dubious assumption is made that a second wave of the coronavirus doesn’t occur, and in any case officials concede that the balance of risks surrounding their baseline growth and inflation forecasts is tilted downward.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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