BoJ Holds Rates, Commits to Keep Ultra-Low Rates


The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its July meeting and kept the target for the 10-year government bond yield at around zero percent, as widely expected. Policymakers underlined that they would not hesitate to take additional easing measures if the economy loses momentum for achieving the central bank's 2 percent inflation target.

Meanwhile, in a quarterly outlook report, the central bank said that both the projections for GDP growth rates and the CPI rates were more or less unchanged. For fiscal 2019, the GDP is expected to grow by 0.7 percent (vs an earlier projection of 0.8 percent). Meantime, the inflation forecast for fiscal 2019 is estimated to average 1 percent (vs 1.1 percent previously expected). For fiscal 2020, the GDP is estimated to advance 0.9 percent, unchanged from an earlier projection, while inflation is projected to average 1.3 percent (vs an earlier forecasts of 1.4 percent).

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 Outlook for Economic Activity and Prices:

Japan's economy is likely to continue on an expanding trend through out the projection period -- that is, through fiscal 2021-- despite being affected by the slowdown in overseas economies for the time being. Although exports are projected to show some weakness, they are expected to be on a moderate increasing trend, with overseas economies growing moderately on the whole. Domestid demand also is likely to follow an uptrend, mainly against the background of highly accommodative financial conditions and the underpinnings through government spending, despite being affected such fastors as the scheduled consumption tax hike.

The year-on-year rate of change in the consumer price index (CPI, all items less fresh food) has been positive but has continued to show relatively weak developments compared to the economic expansion and the labor market conditions. Medium-to-long-term inflation expectations have been more or less unchanged. Nonetheless, with the output gap remaining positive, firms; stance gradually will shift toward further raising wages and prices and households' tolerance of price rises will increase. In this situation, further price rises are likely to be observed widely and then medium-to long-term inflation expectations are projected to rise gradually. As a consequence, the year-on-year of change in the CPI is likely to increase gradually toward 2 percent.

With regard to the risks balance, risks to both economic activity and prices were skewed to the downside. particularly regarding developments in overseas economies. Risks to prices are skewed to the downside, mainly due to the downside risks to economic activity and uncertainties over developments in medium-to-long-term inflation expectations. The momentum toward achieving the price stability target of 2 percent is maintained but is not yet suffficiently firm, and thus developments in prices continue to warrant careful attention. 


BoJ Holds Rates, Commits to Keep Ultra-Low Rates


Bank of Japan l Rida Husna | rida@tradingeconomics.com
7/30/2019 4:25:05 AM