Bank of Japan Policy Review

April 28, 2011

The Policy Board voted unanimously to retain a key rate target range of zero to 0.1% at a meeting lasting three hours and 26 minutes.  This was expected.   A significant easing, including quantitative easing, had been undertaken last month three days after the Sendai earthquake.  The extent of easing surpasses the height of stimulus during Japan’s experience with quantitative easing in 2001-06 and can be seen in the in the extreme excess of banking reserves held at the BOJ.  Current account balances there had averaged JPY 18.77 trillion from the start of 2011 through March 11, the day of the quake.  From March 22 to April 4, such shot up to a daily average of JPY 41.01 trillion and has remained high, averaging JPY 36.45 trillion since April 8.

The Bank of Japan posted two documents today, the first of which merely states today’s actions which included a recommendation to boost the asset  purchase program limit by JPY 5 trillion to JPY 45 trillion, and such was voted down by 8-1.  The other document is an updated Outlook for Economic Activity and Prices with new forecasts.  For the current fiscal 2011, beginning in April, projected growth was revised down a full percentage point, while projected core CPI inflation was revised up by 0.4 percentage points.  The evolution of of the central bank’s forecast are documented below.

  10/09 01/10 04/10 07/10 10/10 01/11 04/11
FY10 +1.2% +1.3% +1.8% +2.6% +2.1% +3.3%  
FY11 +2.1% +2.1% +2.0% +1.9% +1.8% +1.6% +0.6%
FY12         +2.1% +2.0% +2.9%
Core CPI              
FY10 -0.8% -0.5% -0.5% -0.4% -0.4% -0.3%  
FY11 -0.4% -0.2% +0.1% +0.1% +0.1% +0.3% +0.7%
FY12         +0.6% +0.6% +0.7%


As the report explains, Japan was hit by a huge supply-side shock with extensive damage to production facilities.  However, officials believe that previous factors that were pulling the economy out of a decelerating lull remain intact, although the timing and magnitude of the resumption of better growth remains highly uncertain. The report thus devotes especially extensive coverage to the various risks that could knock the baseline forecast off course.

The next scheduled policy meeting will be held over two days on May 19-20.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.