Bank of Japan Modifies Policy Communication Strategy

July 15, 2008

A two-day policy meeting lasting six hours and 50 minutes total produced an as-expected decision to leave unchanged the target overnight rate of 0.5%, which has been at that level since February 2007.  New interim forecasts revised growth slightly downward and core inflation sharply upward as had been anticipated.  Governor Shirakawa stressed, however, that Japan does not face the same kind of stagflation risk as other economies, because elevated commodity prices are not spilling over into wage awards, and firms lack the pricing power to pass on higher costs.  While markets are pricing in a greater likelihood that the next rate change will be up than down, such is not generally expected in 2H08.  Indeed, for now at least, officials are more worried about growth than inflation.  The new forecasts for Fiscal 2008 and Fiscal 2009 are as follows.  The old forecasts are indicated in parentheses.


  Fiscal 2008 Fiscal 2009
GDP Growth 1.2% (1.5) 1.5% (1.7)
Core CPI 1.8% (1.1) 1.1% (1.0)
Domestic CGPI 4.8% (2.5) 1.8% (1.1)


Japanese monetary officials did spring a surprise, nonetheless, and that was to announce several modifications in how they will communicate their policy thinking to the public.

  1. Every meeting, not merely those when interest rates are changed, will be followed by a statement explaining their latest assessment of the economic and price situation.
  2. The October semi-annual economic and price outlook will release forecasts for a longer time horizon than has been done heretofore.
  3. Risk balance charts will be provided when forecasts are updated in January and July and not merely with the semi-annual outlooks in October and April.
  4. The time lag for the release of meeting minutes will no longer ever exceed the interval to the subsequent meeting.
  5. Monthly economic assessments in Japanese will be released one day after the Board meets.  English translations will be available a day after that.

Bank of Japan policy has been more inscrutable than the monetary policies of other central banks such as the ECB, Bank of England, Bank of Canada, Reserve Bank of Australia, or even the Fed.  Much of the opaqueness stems from the vagueness with which officials weigh different criteria.  The definition of price stability lying between zero and 2%, for example, is too wide to be of practical usefulness.  That range’s midpoint of 1.0% is too low for an economy that has had a recent experience with deflation.



Comments are closed.