BoJ Holds Rates, Signals More Easing in October

The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its September meeting, as widely expected, hours after the Federal Reserve lowered rates for the second time this year. Policymakers also kept the target for the 10-year Japanese government bond yield at around zero percent, but said they would review economic and price developments more thoroughly at the next policy meeting, heightening the chance of expanding stimulus as early as October.

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, production, and business sentiment have been affected by the slowdown in overseas economies. Overseas economies have been growing moderately, although slowdowns have continued to be observed. In this situation, exports have shown some weakness. On the other hand, with corporate profits and business sentiment staying at high levels, business fixed investment has continued on an increasing trend. Private consumption has been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Housing investment and public investment have been more or less flat, reflecting the rise in domestic demand, and labor market conditions have remained tight. Meanwhile, financial conditions are highly accommodative. On the price front, the yoy rate of change in the consumer price index (CPI, all items less fresh food) is at around 0.5%. Inflation expectations have been more or less unchanged.

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 such as China, including the effects of the two aforementioned factors; development in global adjustment in IT-related goods; negotiations on the UK's exit from the EU and their effects; and geopolitical risks. 

As for policy rates, the bank intends to maintain the current extremely low levels of short-and long-term rates for an extended period of time, at least through spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike. It will examine the risks considered mostrelevant to the conduct of monetary policy and make policy adjustment as appropriate, taking account of development in economic activity and prices s well as financial conditions, with a view to maintaining the momentum toward achieving price stability target. In particular, in a situation where downside risks are significant, the bank will not hesitate to take additional easing measures if there is greater possibility that the momentum toward achieving the price stability target will be lost.

Given that, recently, slowdowns in overseas economies have continued to observed and their downside risks seem to be increasing, the bank judges that its is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost. Taking this situation into account, the bank will re-examine economic and price developments at the next MPM, when it updates the outlook for economic activity and prices.

BoJ Holds Rates, Signals More Easing in October

Bank of Japan l Rida Husna |
9/19/2019 4:31:47 AM