Bank of Japan Preview

April 9, 2012

This month’s two-day meeting of the Bank of Japan Policy Board is unlikely to result in a policy change.  An unexpected easing in February was made when the yen was trading at 77.5 per dollar and has promoted some depreciation but not as much as monetary officials would like.  Japan’s economy shows some signs of picking up, but a sub-1.0% ten-year JGB yield attests to continuing deflationary price expectations that need to be eradicated.  Additional monetary easing seems plausible, just not less than two months after the asset purchase plan was expanded by JPY 10 trillion (about $820 billion).  In just three weeks on the 27th of this month, the Bank of Japan meets again and will hammer out new quarterly macroeconomic forecasts.  In January, officials retained the same projection for core CPI that it had decided upon in October 2011, 0.1% for fiscal 2012 ending in March 2013 and 0.5% for fiscal 2013.  Those earlier estimates of core inflation lay below the Bank of Japan’s price stability reference rate of 1.0%.  A further deviation from that target in the new projections due later this month might provide a fine excuse to raise the present JPY 65 trillion asset buying ceiling yet again.  Any fresh upward pressure on the yen could likewise force monetary officials to act sooner rather than later.  But a move this week is not generally expected.

Japan’s overnight target interest rate has been a range of zero to 0.1% since October 2011 and last surpassed 0.5% at the beginning of September 1995. An asset purchase program was raised by JPY 5 trillion in October 2010 to JPY 35 trillion, by another JPY 5 trillion in March 2011 after the earthquake, by JPY 10 trillion last August, by JPY 5 trillion in October 2011 and, most recently, by JPY 10 trillion in February 2012.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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