Bank of Japan Left Policy Stance Unchanged As Expected

August 11, 2009

After meeting for five hours over two days, the Policy Board retained a 0.1% rate target on overnight money, announced no other policy actions, and released a statement that introduced nothing new in the BOJ’s economic assessment.  CPI inflation will remain negative but is projected to become less deflationary during the second half of the current fiscal year, that is sometime after September.  There were only two small rate reductions of 20 basis points each in the fourth quarter of 2008 and none in 2009.  The Bank of Japan escalated its injections of liquidity, however, and has conducted unconventional forms of credit easing to facilitate commercial paper market functionality and otherwise alleviate the crunch on corporate financing.  Current account balances held at the BOJ for commercial banks, a gauge of excess reserves, have averaged 13.0 trillion yen thus far in 2009, up from Y 8.1 trillion in 2008.  At today’s press conference, Governor Shirakawa warned that any recovery will be a weak one and that signs of an improving economy reflect policy stimulus rather than a spontaneous revival of private domestic and foreign demand.  Second-quarter GDP figures get released next week.

Today’s decision was unanimous as have been all earlier votes this year.  The Policy Board is scheduled to meet next on September 16-17 and will publish minutes from today’s meeting on September 25th.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.



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