Bank of Japan Leaves Policy Settings as Is but Cuts Projected Growth and Inflation

October 31, 2019

The Bank of Japan’s latest policy review, a meeting lasting five hours and 18 minutes over two days, produced no change in policy settings: a negative 0.1% short-term policy interest rate, a targeted 10-year JGB yield of “around zero percent,” and plans to buy about JPY 80 tln of JGB’s annually. This month’s policy review was accompanied by publication of the quarterly Outlook for Economic Activity and Prices. As was the case in earlier policy reviews, two of the nine Policy Board members (Harada and Kataoka) wanted more stimulus.

In the released documents and Governor Kuroda’s post-meeting press conference, policymakers attempted to convey a growing perceived possibility that the Board may be compelled to ease policy further at a future meeting.

  • Policy guidance was conveyed with somewhat different wording: “Although there had
    been no further increase in the possibility that the momentum toward achieving the price stability target would be lost, it was necessary to continue to pay close attention to the possibility… In a situation where downside risks to economic activity and prices, mainly regarding developments in overseas economies, are significant, the Bank will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost.”
  • Projected growth was revised lower to 0.6% this fiscal year, 0.7% in fiscal 2020 and 1.0% in fiscal 2011. Likewise, core inflation excluding the impact of this month’s sales tax hike was revised downward to 0.5% this year, 1.0% next fiscal year and 1.5% in fiscal 2021.
  • It was reaffirmed that officials in fact will not be satisfied merely if core inflation touches the 2% goal. The intention is to have an interval of sufficient length with core inflation above the target for officials to be satisfied that 2% is the new norm embodied in both actual and expected inflation.
  • Greater worry was expressed that a prolonged inflation undershoot could cause medium- and long-term inflation expectations to become unhinged in a downward manner.
  • Governor Kuroda attempted to dispel concerns that the central bank’s tools to combat any future renews slide in actual or expected inflation. He asserted that the BOJ has many options to address such a development.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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