Bank of Japan

October 27, 2011

On a day that belonged to Europe, the Bank of Japan made some news of its own.

  • The 0.0-0.1% target range for the overnight money rate was retained.
  • Quantitative easing was expanded by another five trillion yen.
  • New quarterly macroeconomic forecasts revised downward projected growth and core inflation.
  • Without abandoning the broad framework of moderate recovery, notice was served that it will take longer for inflation around 1% to be restored.

The Policy Board meeting lasted four hours.  The vote on the target interest rate was 9-0.  The vote to raise the asset purchase program from JPY 50 trillion to JPY 55 trillion drew a dissent from Miyao to increase such by JPY 10 trillion to JPY 60 trillion.  The BOJ statement expressed concern about economic drags related to the euro and U.S. debt problems and from the elevated yen.

New forecasts were contained in the semi-annual Outlook for Economic Activity and Prices.  The evolution of successive quarterly projections is seen in the table below.  Even in the fiscal year ending in March 2014, core inflation manages to rise only to 0.5%.  That’s half as much as the bank’s notion of price stability, and it is less than what in July officials were anticipating this fiscal year and next.  That’s a huge revision conceptually and suggests that even more quantitative easing will be likely.

  01/10 04/10 07/10 10/10 01/11 04/11 07/11 10/11
FY11 +2.1% +2.0% +1.9% +1.8% +1.6% +0.6% +0.4% +0.3%
FY12       +2.1% +2.0% +2.9% +2.9% +2.2%
FY13               +1.5%
Core CPI                
FY11 -0.2% +0.1% +0.1% +0.1% +0.3% +0.7% +0.7% 0.0%
FY12       +0.6% +0.6% +0.7% +0.7% 0.1%
FY13               +0.5%

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



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