BOJ keeps stance, expansion goes on despite slowdown

March 14, 2019

    Japan’s central bank left its monetary policy stance unchanged, as expected, but acknowledged the country’s exports and industrial production have been affected by the global economic slowdown.
     But the Bank of Japan (BOJ) still expects the economy to continue its “moderate expansion” despite the slowdown in overseas economies as domestic demand trends upward, helped by government spending.
     “Although exports are projected to show some weakness for the time being, they are expected to be on a moderate increasing trend on the back of overseas economies growing moderately on the whole,” BOJ said.
     In today’s statement, the BOJ’s policy board confirmed its monetary policy of controlling the yield curve that has been in place since September 2016 – Quantitative and Qualitative Easing with Yield Curve Control (QQE) – and this policy would continue until inflation reaches its 2 percent target.
     In its outlook for economic activity and prices from January, the BOJ lowered its inflation forecast for the fourth time, with inflation excluding fresh food seen rising only 0.8 percent in fiscal 2018, which ends this month, down from October’s forecast of 0.9 percent.
    In January Japan’s core inflation rate edged up to 0.8 percent from 0.7 percent in December.
    Consumer prices in fiscal 2019, excluding the impact of the consumption tax hike, are seen rising 0.9 percent, down from 1.4 percent previously forecast, due to lower oil prices, and for fiscal 2020 inflation is seen at 1.4 percent, down from 1.5 percent.
     Japan’s economy is expected to continue to expand around its potential rate, with growth in fiscal 2018 hit by natural disasters last summer.
     The estimate of gross domestic product growth in fiscal 2018 was lowered to 0.9 percent from October’s forecast of 1.4 percent.
     GDP grew 0.5 percent in the fourth calendar quarter of 2018 from the third quarter for annual growth of 0.3 percent, up from 0.1 percent in the third quarter.
     For this coming fiscal year, the forecast for growth was revised up to 0.9 percent from a previous 0.8 percent, and for fiscal 2020 growth is seen at 1.0 percent, up from 0.8 percent.
     After falling from March 2018 to December, the yen rose strongly in late December but has given up some of those gains this year. Today the yen was trading at 111.8 to the U.S. dollar, down 1.3 percent this year.
      As part of its monetary policy, the BOJ reiterated it would maintain a negative interest rate of minus 0.1 percent on banks’ deposits that exceed reserve requirements along with the purchase of government bonds of around 80 trillion yen in order to keep 10-year government bond yields around 0 percent.
       As part of its QQE policy, the BOJ also purchases Exchange-Traded-Funds (ETFs) and real estate investment trusts (J-REITs) so the outstanding amounts increases at an annual pace of about 6 trillion and about 90 billion yen, respectively.