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.

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 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, CPs at ¥2.2 trillion annually, corporate bonds at ¥3.2 trillion annually, and J-REITs at ¥90 billion per annum.

Key takeaways from the economic outlook -

• Japanese economy and economies overseas are growing at a moderate pace. Growth sluggish in emerging markets. (Mild dovish bias)
• Exports picked up. Corporate profits improved.  Business fixed investments moderately increasing.  Private consumption resilient thanks to steady improvement in employment and income. Industrial production picked up. These trends are likely to continue. (Hawkish bias)
• Inflation to remain negative or zero and inflation expectations weak. In the near term, it might increase slightly due to an increase energy price. BoJ expects to reach 2 percent inflation target as the output gap improves and medium- to long-term inflation expectations rise. (Neutral bias)
• BoJ feels that the risks to the economy are US economic developments and fallout from increases in interest rates, Brexit fallouts, developments in emerging markets especially China, European debt problem, and geopolitical risks. (Neutral bias)
• BoJ says that it would continue with its monetary policy as long as necessary. The bank would do adjustments as necessary. (Neutral bias)

The Bank of Japan’s (BoJ) monetary policy statement remains broadly balanced as of now showing a bias which is more of a neutral one. As the yen weakened after the US Presidential election, and as the inflation strengthens, we expect the BoJ to take no further actions over the next quarter or two.

The yen is currently trading at 113.4 per dollar.