Bank of Japan Stays the Course with no Modification

October 4, 2013

Policymakers released a statement following a five hour 40 minute meeting over two days.  It reads almost identically to the one in September except that assessments of business fixed investment was upgraded to “has been picking up” from “is starting to pick up” and of housing investment to “has also increased” from “has become evident.”  The overall economic assessment of a moderate recovery was left unchanged, and so were the broad elements of the quantitative and qualitative policy introduced on April 4:

  • Growing the monetary base by 60-70 trillion yen a year.
  • By buying annually some JPY 50 trillion of JGBs, JPY 1 trillion of EFTs, and JPY 30 billion of J-REITs. 
  • Holding by the end of this year outstanding totals of JPY 2.2 trillion of commercial paper and JPY 3.2 trillion of corporate bonds.
  • Lengthening the average maturity of the BOJ JGB portfolio to 7 years, a bit more than double of the total when the policy was launched.
  • A goal of 2.0% CPI inflation within two years.
  • An open-ended pledge to keep the policy and add even more stimulus if needed for however long it takes to secure 2% inflation in a stable manner.
  • Sustaining a virtual zero interest rate policy with the overnight uncollateralized money rate in a range between zero and 0.1%.  It’s lately been hovering around 0.07%.

As he’s done each meeting before, Board member Takahide Kiuchi recommended that the quantitative stimulus program be limited to a time frame of two years, and as each time before, his suggestion was rejected by all eight other members of the Board.  There will be a second meeting at the end of this month when the semi-annual Outlook for Economic Activity and Prices will be approved and published.  The Bank’s last set of revised forecasts calls for GDP to expand 2.8% this fiscal year through March 2014, 1.3% next fiscal year, and 1.5% in the year to March 2016.  Core CPI inflation, abstracting from the effect of planned sales tax increases, is forecast to rise 0.6% in FY13, 1.3% in FY14, and 1.9% in FY15.

Governor Kuroda in a subsequent press conference expressed concern about potential negative global repercussions including for Japan of a prolonged U.S. budget stalemate, but he did not reveal any concrete preemptive contingency plans to counteract the drag.  Confidence was indicated in Japan’s ability to maintain positive growth in the face of a 3-percentage point sales tax hike this coming April.  Street analysts assume the BOJ will increase its stimulus at that time but worry that not acting before then might be too late to avoid another recession and/or an undue setback in the goal of eradicating deflation.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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