Financial

Bank of Japan Monetary Policy Settings Unchanged

Bank of Japan (BoJ) kept its monetary policy steady on Friday. The bank remains firm on the sidelines, and several financial markets expected its steady outcome in April.

Having a vote of 8-1, the BoJ decided to maintain its quantitative and qualitative easing with yield curve control (QQE+YCC). This keeps interest rates anchored at 0.1 percent.

The BoJ said that it will conduct purchases of government bonds at an annual pace of around 80 trillion yen ($732 billion) to ensure that the 10-year yields will remain at 0 percent. In addition, the BoJ stated that the program will continue as long as it is necessary to exceed and stay above its 2 percent inflation target in a ‘stable manner’.

The bank also considers the probability of further easing to be at least as high as the probability of tightening.

The BoJ’s decision is completely opposite to other major central banks’ plan to tighten its monetary policy. Also, its decision to stick to the current policy shows a willingness to retain the bank’s radical easing program.

BoJ’s Future Forecast

BOJ's report for April

VIEW BOJ’S APRIL REPORT HERE.

According to BoJ, the economy is likely to continue growing at a pace above its potential in fiscal 2018. External demands will make the economy expected to continue an expanding trend for the years 2019 and 2020.

Real GDP in 2018 fiscal year is expected to rise at 1.6 percent, up from 1.4 in January. However, its forecast on core inflation slipped from 1.3 percent to 1.4 percent.

In addition, GDP growth for 2019 fiscal year was revised up to 0.8 percent, while its inflation forecast remained at 1.8 percent. The financial year will start in March 2019.

For the fiscal year in 2020, the core inflation rate is at 1.8 percent, below its 2 percent target.

The BoJ refrained from offering a view on when inflation will reach its target. The bank noted that the projected rates of increase the CPI are more or less unchanged. The BoJ also added that the timing of the year-on-year rate of change in the CPI will reach around 2 percent in fiscal year 2019.

The bank highlighted four major risks to the outlook: Overseas developments including US economic policies, 2019’s consumption tax increase impact, change in firms and households’ expectations, and fiscal sustainability.

On the other hand, the main risks to price developments are: Change in firms and households’ inflation expectations, item prices not responding to the output gap, and developments in exchange rates and commodity prices.

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