Bank of Japan: No Change in Year-Old Policy Stance

April 8, 2014

As analysts expected, monetary officials in Japan left their policy unchanged after this week’s two-day meeting and released a statement that for the most part is no different from the one in March.  Modifications were made in the paragraph dealing with growth and price conditions, and these were modest.

  • Most notably, the following sentence was inserted in the text: “Business sentiment has continued to improve, althoug some cautionsness about the outlook has been observed.”
  • “As a trend” was added to the assertion of the economy continued to recover moderately, which is a further way of saying that growth is being judged on a trend basis, smoothing out consumption-tax volatility in the first half of 2014.
  • Housing investment was changed to “remained resilient” from “continued to increase.”
  • The noted “improvement in the employment and income situation” was qualified by acknowledging “fluctuations due to the tax hike.”
  • Industrial production was changed from increasing “at a somewhat accelerated rate” to being “on a moderate increasing trend.”

The BOJ has given some push-back to those who say monetary policy should be eased now or predict that will happen around midyear.  There was no hit of a likely easing soon in the statement or at Governor Kuroda’s press conference.  Great satisfaction was expressed with the impact of the year-long quantitative and qualitative easing. 

There will be another BOJ Board meeting at the end of April, coinciding with the release of a semi-annual Outlook for Economic Growth and Prices and new quarterly macroeconomic forecasts.  In July, GDP growth was projected at 1.4% in fiscal 2014 followed by 1.5% in fiscal 2015 that ends March 2016.  Excluding the estimated impact of the consumption tax, officials in July predicted core CPI inflation of 1.3% this fiscal year and 1.9% in fiscal 2015.  The goal is a sustained 2.0% medium-term inflation rate, to be achieved among other things by a doubling of the monetary base within two years of April 2013.  Quantitative easing is being used to keep low long-term interest rates and to stretch out the average maturity of the BOJ’s JGB holdings to seven years.  The 10-year JGB yield was at 0.45% when this policy was started on April 4, 2013, crested around 0.87% at the next release of macro forecasts on July 11, fell to 0.59% on October 31, 2013 when the last semi-annual Outlook got released, and is presently at 0.61%.  GDP expanded at sub-1% annualized rates of 0.9% in 3Q13 and 0.7% in 4Q13but rose 2.6% between the final quarters of 2012 and 2013.Dollar/yen is around 8% stronger now than when the policy started, and the yen’s depreciation has been significant in restoring positive but low inflation.

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



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