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At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan (BoJ) decided to keep its short-term policy interest rate at minus 0.10 percent, while purchasing Japanese government bonds (JGBs) so that 10-year JGB yields remain at around zero percent mark.
With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.
Moreover, the Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 6 trillion yen and about 90 billion yen, respectively. Additionally, 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.
The BoJ in its quarterly economic outlook report mentioned that the Japan's economy is likely to continue growing at a pace above its potential through the projection period -- that is, through fiscal 2018 -- on the back of highly accommodative financial conditions and the effects of the government's large-scale stimulus measures, with the growth rates in overseas economies increasing moderately. The central bank revised up its estimate on Japan Real GDP to +1.5 percent for FY2017/18 vs +1.3 percent projected in November, for FY2018/19 at +1.1 percent vs +0.9 percent projected in November.
In addition, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is likely to increase from about 0 percent and become slightly positive, reflecting developments in energy prices. Thereafter, it is expected to increase toward 2 percent as the aggregate supply and demand balance (the output gap) improves and medium- to long-term inflation expectations rise. The central bank kept the core CPI forecast at +1.5 percent for FY2017/18 vs +1.5 pct projected in November, for FY2018-19 at +1.7 percent vs +1.7 pct projected in November ( Likely to see inflation reach 2 pct around fiscal 2018).
