Bank of Japan Policy Board Leaves Stance Unchanged

July 12, 2011

Japanese monetary policymakers eased within three days of the Sendai earthquake that struck Northeast Japan on March 11 but cutting the overnight money rate target to zero to 0.1% from 0.1% and by enhancing the asset purchase plan by 5 trillion yen to 40 trillion.  A subsequent proposal to by one Board member to raise such by another 5 trillion yen was rejected by the other eight members and not re-proposed at subsequent meetings.  At a meeting in mid-June, policymakers established a new line of credit for equity investments to further enhance financial institutions’ efforts to strengthen the foundation for economic growth through the use of a wider range of tools.  The Bank’s Board met again yesterday and today for a total six hours and 23 minutes and emerged with no fresh initiatives.

Since the immediate aftermath of the earthquake, officials have meanwhile become increasingly optimistic that the economy is healing from its extreme shock and likely to enter a “moderate recovery path in the second half of the current fiscal year,” that is after September.  The forecast is counting on “improved overseas economic conditions,” a dubious assumption in light of the extreme financial turmoil today in all markets, and the coming demand for restoring damaged facilities in Japan.  Supply chain disruptions are already becoming less pronounced.  Officials further forecast that core CPI inflation will remain slightly positive, even though the CPI data series will get revised downward in August when a new base year is adopted for the data series.

The statement posted today on the Bank of Japan’s web site unveils a quarterly update of projected growth and core inflation in fiscal 2011 and fiscal 2012, which are remarkably similar to those announced previously on April 28.  The table below documents the evolution of sequential forecasts made over the last year and a half.  A forecast for domestic corporate goods prices is also given, projecting a deceleration of such from 2.4% this year to 0.6% in fiscal 2012.

  01/10 04/10 07/10 10/10 01/11 04/11 07/11
FY11 +2.1% +2.0% +1.9% +1.8% +1.6% +0.6% +0.4%
FY12       +2.1% +2.0% +2.9% 2.9%
Core CPI              
FY11 -0.2% +0.1% +0.1% +0.1% +0.3% +0.7% +0.7%
FY12       +0.6% +0.6% +0.7% +0.7%


The remaining scheduled Policy Board meetings in 2012 are set for August 4-5, September 6-7, October 6-7, October 27, November 15-16, and December 20-21.

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



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