Japan – Monetary policy unchanged as stimulus package details emerge
Published 23 December 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
The Bank of Japan keeps its monetary policy unchanged. Japanese household assets and corporate cash holdings reach a record high. Details of a new Government stimulus package emerge.
Detail
The Bank of Japan (BoJ) kept its current monetary policy unchanged at the conclusion of its December Monetary Policy Meeting. As in recent months, the decision was taken with an 8-1 majority. The current rate of Japanese Government Bond (JGB) purchases will remain around 80 trillion Yen (£434 billion) per year as announced in October.
The Policy Board continues to consider that the Japanese economy is recovering moderately and that the decline in demand following the increase in Japan’s VAT rate in April is waning. The bank raised its expectations on exports, industrial production and housing investment in its statement. It expects to see inflation remain around 1% for the time being.
BoJ data also reveals that assets held by Japanese households increased to a record 1,654 trillion yen (about £9 trillion) at the end of September. The BOJ attributed this to the impact of higher share prices and investment trusts. By type of assets, cash and deposits grew 1.7 percent to 870 trillion yen, retaining the largest portion. Shares and other equities rose 5.6 percent to 156 trillion yen, while investment trusts were up 14.9 percent at 86 trillion yen.
Corporate cash holdings also increased 4.2% over the past year to 233 trillion yen (£1.1 trillion - or almost 50% of GDP) over the same period. This figure has increased every quarter for the past six years despite firms’ assets in direct investment overseas rising to a record 73 trillion yen ( £400bn).
Details of a new Government stimulus package have started to emerge. Expected to be around 3.5 trillion yen (£19 billion), it will be funded by utilising underspends elsewhere and higher than expected tax revenue – no additional debt will be issued. 1 trillion Yen of this is expected to be targeted towards pepping up consumer spending outside the major metropolitan areas – areas which have yet to feel the economic recovery – ahead of local elections in April.
Comment
While falling oil prices are welcome for consumers, they make it harder for Central Banks to increase inflation as they are trying to do in Japan. It would not be a surprise to see inflation fall further before it stabilises.
Spending by Japanese corporate firms has increased since Abenomics has come into effect and business surveys (i.e. the Tankan) report that firms plan to increase spending. However, the fact that their cash holdings continue to increase illustrates the scale of the challenge and firms’ cautious nature.
We will report on the stimulus package in greater detail as specifics emerge ,but there is a question mark over the ability of the Japanese system to effectively spend the money. The last package designed to offset the VAT rise this year failed, partly as construction firms didn’t have enough labour to implement projects.
Disclaimer
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