Bank of Japan

February 18, 2014

The February BOJ Board meeting produced more sizzle than real substance.  The main take-away from a statement at the completion of the five hour 34 minute meeting over two days is that policy settings will remain unchanged.  A program of quantitative and qualitative easing characterized by near-zero interest rates and heavy monthly purchases of long-term fixed-income securities was launched at the start of April 2013 and not as yet modified — not even after further evidence of a marked slowdown in economic growth after mid-2013, that is just one quarter into implementation of the controversial program.  Nothing that has happened surprises BOJ officials, who remain very confident that their monetary stimulus will deliver by March 2015 sustained 2% core inflation (even after filtering out the direct effect of the coming consumption tax increase).  They are equally sure that Japan’s economy will continue to recover moderately.  Meanwhile, real GDP grew only 1.0% annualized last quarter after slowing to about that level in 3Q, and personal consumption, which was supposed to rally sharply ahead of the tax, advanced at just a 2.0% pace.  Additionally worrisome is the pace of real export demand, which hasn’t been goosed by the more competitive level of the yen.

Now about the sizzle.  Long before Abenomics, special inexpensive lending facilities were introduced to encourage banks to make loans to firms and households, for example to assist those hurt especially by the Sendai disaster.  Banks never took anywhere near full advantage of these incentives, which were scheduled to expire at the end of next month.  Instead, they have been extended for another year and in some cases, the terms permitted are becoming more generous.  By doing this expected gesture, the BOJ home page link to today’s statement proclaims and extension and enhancement of elements of its policy, giving the impression that something very meaningful was decided.  It wasn’t.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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