Bank of Japan Review

November 19, 2014

The first meeting since a dramatic augmentation of quantitative stimulus, which took 5 hours and 24 minutes, reaffirmed those new policy parameters.

  • The monetary base is being expanded via asset purchases by 80 trillion yen per year, versus 60-70 trillion prior to October 31.
  • Annual JGB purchases will amount to 80 trillion yen, up from 50 trillion, and the average maturity of JGB holdings is to rise to 7-10 years versus a prior goal of 7 years.
  • Y 3 trillion of ETF holdings will be bought per year, three times the old goal.
  • Y 90 billion of J-REITs are to be bought per year, also three times more than the prior pace.
  • Outstanding holdings of commercial paper and corporate bonds were not changed at the prior meeting.

While the original vote three weeks ago to stimulate more forcefully passed by a narrow 5-4 margin, today’s decision was supported by 8 of the 9 policymakers.  Kiuchi dissented from the open-ended nature of the stimulus with regarded to its duration and also from the new settings, preferring those that had been used from April 2013 through last month.

Governor Kuroda in a subsequent press conference failed to whole-heartedly endorse Prime Minister Abe’s decision to move the next consumption tax hike to April 2017 from October 2015.

Today’s released statement did not modify the economic assessment much despite confirmation earlier in the week that Japan was in technical recession during the middle two quarters of 2014.  The moderate recovery trend remains the overall assessment, notwithstanding the post-tax setback, and the outlook continues to be “continuing moderate recovery,” with core CPI inflation around 1% for the time being but climbing during the second half of 2015.  Exports, which previously had “shown some weakness,” were upgraded to “more or less flat.”  Business fixed investment, which fell in 2Q and 3Q, was characterized as on a moderately increasing trend, and the “resilience” of personal consumption was noted.  Regarding housing, the statement deletes the previous comment about signs of a bottoming out.  There is no remark this month about business sentiment, but inventory adjustments are said to be “continuing.”  Among risk factors to the outlook, protracted low inflation in Europe was added to the list.

Customs trade due Thursday are likely to show healthier export growth.  In the first twenty days of October, exports recorded on-year growth of 4.5%, but imports (up 3.9%) rose almost as much, and the trade deficit was only 1.5% smaller than recorded a year before.  One of the theoretical ways that unconventional monetary stimulus can boost growth is by depressing the yen, but so far that has translated into a much smaller response than had been assumed.

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



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