BOJ Leaves Settings Unchanged

August 9, 2012

After a two-day six hour twelve minute meeting on Wednesday and Thursday, the Bank of Japan’s Policy Board made no changes to its 0-0.1% interest rate target or to the JPY 70 trillion total quantitative stimulus consisting of JPY 45 trillion in asset purchases to be completed by mid-2013 and JPY 25 billion in a credit-loan facility.  The decision was expected.  A statement was moreover released that retained July’s assessment of the economy that activity will continue on a moderate recovery path and that inflation will remain around zero for the time being.  The last change in the interest rate target occurred 22 months ago, and it is noteworthy that the overnight money rate target has not been higher than 0.5% since September 1995. 

The JPY 70 trillion ceiling on planned quantitative stimulus was established in April after a JPY 5 trillion increase that month.  Quantitative stimulus can be gauged by the daily total of current account balances held with the BOJ.  These have averaged JPY 35.03 trillion since the April increase.  That compares to JPY 31.05 trillion over the first six weeks of 2012, JPY 29.78 trillion on average in 2011, and JPY 16.80 trillion in 2010.  Alternatively, one can look at the BOJ balance sheet, which totaled JPY 145.5 trillion at the end of July, which was not all that much greater than an asset total of JPY 141.5 trillion at end-August 2011.  Japan needs more policy stimulus than it is getting.  If the BOJ acted as aggressively as its rhetorical pledge to eradicate deflation implies, inflation, JGB yields, and money growth would be higher, and the yen wouldn’t be so relentlessly bid.

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



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