BoJ Holds Rates, Lowers Export and Output Assessment


The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its March meeting, as widely expected. Policymakers also kept the target for the 10-year Japanese government bond yield at around zero percent, but offered weaker views on exports and output amid rising global headwinds.

With regard to the amount of JGBs to be purchased, the bank will conduct buying at more or less the current pace -- an annual pace of increase of about 80 trillion yen.

The BoJ also determined by an unanimous vote to purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual paces of about JPY 6.0 trillion and about JPY 90 billion, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the bank may increase or decrease the amount of purchases depending on market conditions. As for CP and corporate bonds, the bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.

Excerpts from the Statement on Monetary Policy:

Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating. Overseas economies have been growing moderately on the whole, although slowdown have been observed. In this situation, exports have shown some weakness recently. On the domestic demand side, business fixed investment has continued on an increasing trend, with corporate profits and business sentiment staying at a favorable level. Private consumption has been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Meanwhile, housing investment has been more or less flat. Public investment also has been more or less flat, remaining at a relatively high level. Reflecting these development in demand both at home and abroad, industrial production has been on a moderate increasing trend, although it has shown some weakness recently. Labor market conditions have continued to tighten steadily. Financial conditions are highly accommodative. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is in the range of 0.5-1.0 percent. Inflation expectations have been more or less unchanged.

With regard to the outlook, Japan's economy is likely to continue its moderate expansion. Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, mainly against the background of highly accommodative financial conditions and the underpinnings through government spending. Although exports are projected to show some weakness for the time being, they areexpected to be on a  moderate increasing trend on the back of overseas economies growing moderately on the whole. The year-on-year rate of change in the CPI is likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium- to long-term inflation expectations rising.

Risks to the outlook include the following: the US macroeconomic policies and their impact on global financial markets; the consequences of protectionist moves and their effects; developments in emerging and commodity-exporting economies including the effects of the two aforementioned factors; negotiations on the United Kingdom's exit from the European Union (EU) and their effects; and geopolitical risks.

BoJ Holds Rates, Lowers Export and Output Assessment


Bank of Japan l Rida Husna | rida@tradingeconomics.com
3/15/2019 4:56:40 AM