BoJ decides to stay put on policy
By Digital Look
Date: Monday 10 Dec 2018
(Sharecast News) - The Bank of Japan decided to keep all its main monetary policy settings unchanged at the end of the week and continued to predict steady growth.
Japan's monetary authority kept its short-term interest rates on hold at -0.1% with the target of "around 0%" for the 10-year Japanese government bond yield also unchanged. meaning that potential investors are still expecting a low rate of inflation in the upcoming years.
So too, policymakers said they would continue to scoop-up government bonds at a pace of approximately 80bn yen a year.
To take note of, Japan's nominal bonds yields have been exceedingly low for over two decades, but the deflationary trap in which the economy had fallen meant that in 'real' of inflation-adjusted terms, interest rates had been stiflingly high.
As a result, and contrary to the US central bank, the Federal Reserve, which began raising interest rates at the end of 2015, or even the European Central Bank, which is expected to wrap-up its programme of asset purchases at the end of 2018, Japan's monetary authority continues to tread carefully.
In their policy statement, rate-setters in Tokyo said their economy was expanding "moderately", helped by a "virtuous cycle" from income to spending. As well, the BoJ said that: "business fixed investment has continued on an increasing trend with corporate profits and business sentiment maintaining their improving trend an overall strong rate of investments and corporate profit."
However, with so-called 'core' consumer price inflation relatively steady in a range of 0.5 to 1% in year-on-year terms and with its inflation target still at 2%, policy-makers stuck to a 0% target for nominal 10-year government bond yields, as economists had expected.
Indeed, in April, the BoJ had forecast core CPI to be at exactly 1.0%, although for now at least it continued to predict that it would trend higher until it hit its target.
In an initial reaction to the outcome of Friday's meeting, the yen weakened against the US dollar, with the exchange rate rising to 110.93, but by midday it had strengthened to 110.39.
Commenting on the policy decision, analysts at Capital Economics said they were sceptical that inflation in Japan would reach the central bank's 2% inflation goal anytime soon.
As underlined by Marcel Thieliant, Senior Japan economist at the research consultancy: "demand is set to decrease next year following the increase in sales taxes".
In a research note sent to clients, he went on to explain that the BOJ's main objective was to maintain price stability, not financial stability.
Hence, he said, Japan's approach to monetary policy will remain unchanged in the foreseeable future.
Only one of the BoJ's nine rate-setters dissented from the decision to stay put on policy.
"A debate is raging among Board members about the impact of prolonged monetary easing on financial stability. The main concern is that low interest rates undermine lenders' profitability, lower their capital ratios, and may ultimately curb their ability to provide credit," Thieliant said.
"Meanwhile, the Bank is unlikely to reach its 2% inflation target anytime soon, not least because domestic demand is set to weaken after next year's sales tax hike. Our view remains that the Bank will prioritise its price stability over its financial stability mandate, and we expect policy settings to remain unchanged for the foreseeable future."
Special promo:
Trading the Forex Market? Visit FXmania.com to get advanced infomation about currencies and the Foreign Exchange
Market.
Email this article to a friend
or share it with one of these popular networks:
You are here: news
10 Lower Thames St,
London EC3R 6EN