No Change in Bank of Japan Policy But Upgraded Assessment of Economy

May 22, 2015

BOJ policymakers took a step away from their easing bias by upgrading their view of Japan’s economic outlook.  The forecast for some time has predicted continuing moderate recovery, but a statement released after four hours 53 minutes of deliberations over two days by the Policy Board expressed greater confidence of the baseline scenario, and Governor Kuroda’s press conference flatly asserted that further easing now is unnecessary.  In particular, officials feel that trends in household income and employment have improved.  As for inflation, the underlying core CPI rate of 0.2% two years after the implementation of quantitative stimulus began is 1.8 percentage points below the goal of 2.0%, whose attainment initially was sought by this time, but officials believe that the objective will be secured in a stable manner by the middle of 2016.  Given the lack of progress in promoting faster sustained growth and a 2% inflation rate, the rhetoric of BOJ officials seems chronically overconfident. 

Today’s vote to continue expanding the monetary base at an annual rate of JPY 80 trillion was approved 8-1, with Kiuchi again voting instead for cutting the program’s size back to JPY 45 trillion.  Kiuchi has been more hawkish than his colleagues from the get-go, yet the only modification made in quantitative easing so far was to increase such, a move that was engineered with surprise at the end of last October.  Prior to that shift, officials had also spoken with hubris in insisting that the pre-existing policy settings provided sufficient thrust to end deflation.  With a year still to go before the witching hour regarding achievement of 2% inflation, the only thing certain at this juncture is that no change will be announced for several more months.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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