Bank of Japan Maintains Status Quo

December 21, 2017

The Bank of Japan has a stimulative monetary policy that goes by the title of “quantitative and qualitative easing(QQE) with yield control.” The unchanged settings at the final scheduled policy review of 2018

  • A Policy-Balance interest rate of negative 0.1%
  • A target 10-year JGB yield of “around 1.0%”
  • JGB purchases of roughly 80 trillion yen a year
  • Annual ETF and J-REIT purchases of JPY 6 tln and JPY 90 billion
  • A mandate to achieve 2.0% sustainable core CPI inflation
  • Determination to continue a highly stimulative stance until the mandate is achieved and to modify policy toward greater or more effective stimulus if current policy doesn’t secure the policy goal

are the same as those adopted at the first Board meeting of the year way back in January and were introduced fifteen months ago. There had been market speculation of late of a rising predisposition to at least raise the target on the 10-year JGB and perhaps compromise other elements to monetary stimulus. Governor Kuroda in the post-meeting press conference discouraged such thinking, asserting that neither Fed tightening nor broader Japanese economic growth would trigger less monetary stimulus, which is single-minded in focusing on attainment of 2% core inflation with confidence that such isn’t a fleeting blip.

Alas, the inflation goal remains elusive. Core CPI is still somewhat below 1%, and central bank officials currently pencil in projected core CPI at 1.4% next fiscal year and 1.8% in fiscal 2019. In the wake of October’s general election, it looks increasingly likely that BOJ succession will break tradition when Governor Kuroda’s term ends in April. Governors have always served a single five-year term in modern times, but Kuroda is the odds-on favorite to get a second term. That endows his defense of staying the current policy course with greater legitimacy. So does the fact that the sole dissent from today’s Board majority decision by Gataoka Kataoka favored more, not less, stimulus from the central bank.

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



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