Bank of Japan Leaves Policy Settings Unchanged

January 21, 2020

This month’s Bank of Japan meeting of the Policy Board concluded with no change in policy settings and the release of the quarterly Outlook for Economic Activity and Prices which includes a perplexing mix of upgraded growth forecasts but downgraded estimates of future core inflation. The announcement of no policy change after four hours and 10 minutes of deliberations by the nine Board members retains a short-term policy interest rate of -0.10%, a continuing 10-year JGB yield objective of “around zero percent” and plans to keep purchasing approximately 80 trillion yen of sovereign debt per year. Ultra-low interest rates and quantitative stimulus are to be maintained until core inflation has spent some time above the 2.0% goal. Once again, two policymakers — Harada and Kataoka — wanted additional monetary stimulus to be introduced now. Projected GDP growth in fiscal 2019 of 0.8% and in fiscal 2020 of 0.9% are each 0.2 percentage points (ppts) above forecasts made in October, and the growth estimate for fiscal 2021 was bumped up 0.1 ppt to 1.1%. The growth upgrade follows the recently approved $120 billion fiscal stimulus package, but Governor Kuroda played down the likely impact of that development, noting repeatedly that significant external risks persist and thus make it premature to yet consider the timing of any first tightening of policy. Indeed, core CPI inflation estimates were cut 0.1 pptĀ  to 0.6% this fiscal year, 1.0% in fiscal 2020 and 1.4% in fiscal 2021.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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