BOJ monetary policy: Assessing future bias

At today’s meeting, policymakers at the Bank of Japan (BoJ) kept the policy unchanged, and the benchmark interest rate at -0.1 percent in 8-1 votes.

Let’s look at the current monetary policies,

• Bank of Japan had already shifted the timeline for reaching the 2 percent inflation goal to “earliest possible time” and with that view, it had introduced QQE with yield curve control. It means that the bank would guide both short term and long term rates while purchasing assets at the pace of ¥80 trillion per annum until the inflation overshoots the 2 percent target and stays above.
• For short-term rate controls, BoJ will maintain a negative interest rate of -0.1 percent and for the long-term rate control, it would purchase assets in such a manner that the 10-year yield remains around zero percent.
• In addition to that, BoJ would use fixed rate purchases of JGBs and fixed rate funds supplying for a period up to 10 years.
• The bank will continue to purchase ETFs at ¥6 trillion per annum and J-REITs at ¥90 billion per annum. CPs will be maintained at ¥2.2 trillion and corporate bonds at ¥3.2 trillion.

Key takeaways from the economic outlook -

• Japan's economy expanding moderately, with a virtuous cycle of income to spending operating. Overseas economies continued to grow at a moderate pace. Exports have been on an increasing trend. Business fixed investment moderately increasing corporate profits improving. Private consumption increased its resilience against the background of steady improvement in the employment and income situation. Public investment has been increasing while housing investment has been more or less flat. Reflecting these increases in demand both at home and abroad, industrial production has been on an increasing trend, and labor market conditions have continued to tighten steadily. Financial conditions are highly accommodative. (Neutral bias)
• Inflation in the range of 0.5-1 percent y/y, with inflation expectation weakening. (Neutral bias)
• Inflation is likely to continue its uptrend and increase towards 2 percent on the back of improvement in the output gap and a rise in medium to long-term expectations. However, it remains weak as of now.  (Neutral bias)
• Japan's economy is likely to continue its moderate expansion. Domestic demand is likely to follow an uptrend on the back of highly accommodative financial conditions and fiscal spending through the government's large-scale stimulus measures. Exports are expected to continue their moderate increasing trend on the back of the improvement in overseas economies. (Neutral bias)
• Risks to the economy are, the U.S. economic policies and their impact on global financial markets; developments in emerging and commodity-exporting economies; negotiations on the United Kingdom's exit from the European Union (EU) and their effects; prospects regarding the European debt problem; and geopolitical risks. (Neutral bias)
• BoJ says that it would continue with its monetary policy unless inflation reaches 2 percent objective. The bank would do adjustments as necessary. (Neutral bias)

The Bank of Japan’s (BoJ) monetary policy statement remains broadly balanced and more neutral compared to the previous statement, which was mildly hawkish tilted.