Japan: No change in policy from the Bank of Japan
Published 24 November 2014
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This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
The Bank of Japan (BOJ) keeps its monetary policy unchanged. Political uncertainty due to the forthcoming election may put more burdens on the Bank’s shoulder.
Detail
Following October’s Monetary Policy meeting in an 8:1 majority the BOJ board in mid November decided to maintain its current Quantitative and Qualitative Easing (QQE) policy.
The current pace of monetary base expansion is 80 trillion Yen (£440bn) per year with massive Japanese Government Bond (JGB) purchases (annual 80 trillion Yen).
The Bank continues to state that the Japanese economy should ‘recover moderately as a trend’. However, it downgraded its assessment on inflation slightly: from ‘around 1 ¼%’ last month to ‘around 1%’.
BOJ Governor Kuroda said that he expects the economy to continue expanding gradually and inflation to reach BOJ’s 2% target within the targeted time horizon.
Meanwhile, the eighteen month postponement for the next planned VAT increase announced by PM Abe will result in an expected tax revenue losses of more than 5 trillion yen (£28bn). This is bearish news for Japanese Government Bond (JGB) markets, as the losses are likely to be financed by additional debt issuance without expenditure cuts.
Comment
JGB markets, however, have been relatively calm about the news despite Japan’s extremely weak fiscal fundamentals. BOJ dominates the markets through QQE programme, suppressing market interest rates significantly. One major rating agency announced that Japan’s debt rating will be reviewed by the end of this year.
Disclaimer
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