Research and analysis

Japan: monetary policy developments

Published 11 August 2014

This research and analysis was withdrawn on

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

This publication was archived on 4 July 2016

This article is no longer current. Please refer to Overseas Business Risk – Japan

Detail

As widely expected, the Bank of Japan’s (BOJ) Monetary Policy Board announced no change at the conclusion of its monthly meeting on 8 August. It continues with its Quantitative and Qualitative Easing (QQE) with the intention of reaching its 2% price stability target.

The BOJ continued to see Japan’s economy ‘recover moderately’ despite some weakness in exports. Looking ahead, it sees inflation expectations rising though it expects inflation to remain near 1.25% for the next few months.

Japan’s current account balance also turned negative for the first time in 5 months. At 399.1 billion Yen (£2.33bn) it was slightly worse than the market consensus of 325.7bn. The Income surplus at 418.2bn (£2.44bn) Yen was insufficient to offset the trade deficit of 537.1 bn Yen (£3.13bn). The current account deficit during H1 2014 was 507.5bn Yen (£2.96bn) – the first time since 1985 when comparable data became available that the H1 current account has been in deficit.

The Nikkei fell sharply to close 2.98% down at 14778.37 while the Yen strengthened to 101.75 against the US Dollar. However, this was a reaction poor US markets overnight as well as the fears of geopolitical risk over Ukraine as well news of President Obama authorising air strikes in Iraq rather than today’s economic news.

Comment

The BOJ remain confident that they will reach their inflation target given tightening labour markets and the closing of the output gap. They expect both of these to result in salary increases. Independent analysts remain less confident but expectations of further monetary easing any time soon continue to decrease.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.