Bank of Japan Keeps Existing Policy Settings
October 31, 2017
The Bank of Japan Board released both a statement and a fresh quarterly Outlook for Economic Activity and Prices after its latest policy review, a two-day meeting that consumed a total four hours seven minutes of discussion.
The Outlook is the more informative document as it provides extensive background regarding current economic conditions, the baseline scenarios for growth and inflation, and various risk factors surrounding those baselines. The two tables below document the quarterly evolution of projected GDP growth and core inflation. Core inflation in fiscal 2019 is adjusted to excluded the expected impact of a 2 percentage point hike in the consumption tax planned for October 2019. For the third time in a row, projected core CPI, which excludes fresh food, has been revised lower for fiscal 2017, the current one that began on April 1 and runs through March 31, 2018. Note, too, that even in fiscal 2019, ending in March of 2020, core inflation is not expected to average at the 2.0% target or higher. However, officials do expect 2.0% to be touched at some point before the fiscal year ends. It is the continuing pledge of BOJ policymakers that quantitative and qualitative monetary stimulus with yield curve control will be sustained until core inflation goes above 2.0% and stays above that target in a stable manner. The latest affirmation of that guidance drew one dissent from the 9-person board, but that member, Gataoko Kataoka, prefers to implement an even more stimulative policy than the current settings imply.
| GDP, %
October 2017 July April January ’17 October ’16 |
Fiscal 2017
1.9% 1.8% 1.6% 1.5% 1.3% |
Fiscal 2018
1.4% 1.4% 1.3% 1.1% 0.9% |
Fiscal 2019
0.7% 0.7% 0.7%
|
| Core CPI
October ’17 July April January ’17 October ’16 |
Fiscal 2017
0.8% 1.1% 1.4% 1.5% 1.5% |
Fiscal 2018
1.4% 1.5% 1.7% 1.7% 1.7% |
Fiscal 2019
1.8% 1.8% 1.9% |
Other items of interest found in the Outlook include
- Japan has positive output gap already that will widen over the coming year because actual GDP growth is expected to exceed the pace of potential inflation, which is estimated to lie between 0.5% and 1.0%. What this ordinarily would mean is that inflation ought to accelerate.
- However, inflation expectations remain in a weakening phase that for the time being has locked core inflation into a sub-target 0.5-1.0% band.
- Real growth continues to be broadly based and moderate in strength. Growth risks are roughly balance. A soft yen is supporting growth.
- Lower mobile phone prices are a major reason for lower-than-assumed inflation this year. Higher commodity prices will help lift inflation eventually.
The statement retained the essential existing elements of the current policy stance. A negative 0.1% continues to be assigned to the policy-rate balances that banks hold with the BoJ. A second target of around zero percent applies to the 10-year JGB bond yield, enforced through JGB purchases by the central bank of around 80 trillion yen a year. (The Board’s sole dissenter believes a similar target on the 15-year JGB could be warranted by the continuing failure of inflation to reach its target as soon as hoped). Purchases of ETFs (JPY 6 tln per year) and J-REITs (JPY 90 bln per year) have been retained, and the outstanding amounts of corporate bonds (JPY 3.2 trillion) and commercial paper (2.2 trillion) also were not modified.
A final detail of great interest but not yet revealed is whether Governor Kuroda, age 73, will be granted an additional term by Prime Minister Abe. Kuroda’s current term expires next April, and by custom governors of the Bank of Japan have been limited to a single five-year term. Quantitative stimulus at the BOJ is closely linked to Kuroda. The terms of Deputy Governors Nakaso and Iwata end in March 2018. It would be easier presumably for a different leadership to embark on a radically different policy approach.
Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Japan
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