Bank of Japan Retains Existing Policy

March 16, 2017

After four hours 33 minutes of deliberations on Wednesday and Thursday, the BOJ stuck with all parameters of their policy of “quantitative monetary easing with yield curve control.” QQE was introduced in April 2013 and augmented in October 2014. A negative 0.10% marginal rate on balances held by banks at the BOJ was adopted in January 2016. Six months later, annual purchases of exchange-traded funds were nearly doubled. An even more radical easing enhancement was added in September when the primary focus switched from short-term interest rates to yield curve control via a new objective to hold the 10-year JGB yield around 0.0%.

The second scheduled BOJ Board meeting of 2017 had not been expected to adjust policy in any way, and that was true. Speculation had been churning, however, that pressure is mounting on officials to let the 10-year JGB yield creep higher in line with the long-term trends of most countries. A statement released after the meeting put that notion to rest at least for now and stood in contrast to the People’s Bank of China, which boosted some short-term rates by 10 basis points for a third straight month only hours after Federal Reserve had tightened its stance. BOJ officials still believe that tightening now could undermine efforts to increase inflation expectations. They do not expect to see 2% core inflation for two years, and consider risks to inflation and growth to be still skewed to the downside of their assumed trends.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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