BoJ Holds Rates, Warns of Heightening Global Risks


The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its June meeting, as widely expected, hours after the Federal Reserve signalled possible interest rate cuts later this year. Policymakers also kept the target for the 10-year Japanese government bond yield at around zero percent, but warned that downside risks regarding overseas economies were likely to be significant so that close attention should be paid to their impacts on firms' and households' sentiment.

With regard to the amount of JGBs to be purchased, the bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen. 

The BoJ also determined by an unanimous vote to purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual paces of about 6 trillion yen and about 90 billion yen, 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 has been on a moderate expanding trend, with a virtuous cycle from income to spending operating, although exports and production have been affected by the slowdown in overseas economies Overseas economies have been growing moderately on the whole, although slowdowns have been observed. In this situation, exports and industrial production have shown some weakness. On the other hand, corporate profits and business sentiment have stayed at favorable levels on the whole, albeit with some weakness observed in part, and business fixed investment has continued on an increasing trend. Private consumption has been increasing moderately, albeit with fluctuations, against the background of steadyimprovement in the employment and income situation. Housing investment has been more or less flat. Public investment also has been more or less flat, remaining at a relatively high level. Meanwhile, 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 on a  moderate expanding trend, despite being affected by the slowdown in overseas economies for the time being. Domestic demand is expected 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 are expcted 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 U.S. macroeconomic policies and their impact on global financial markets; the consequences of protectionist moves and their effects; developments in emerging and commodity-exporting economies such as China, including the effects of the two aforementioned factors; developments in global adjustments in IT-related goods;  negotiations on the United Kingdom's exit from the European Union (EU) and their effects; and geopolitical risks.

BoJ Holds Rates,  Warns of Heightening Global Risks


BoJ l Rida Husna | rida@tradingeconomics.com
6/20/2019 5:38:35 AM