Japan: no new action by the Bank of Japan
Published 9 October 2014
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This article is no longer current. Please refer to Overseas Business Risk – Japan
Summary
The Bank of Japan leaves its monetary policy unchanged. No hint of any policy change in the near future. However, many commentators observe that the Bank will need to change its policy sooner or later. Growing concerns raised about recent weakening of the yen.
Detail
The Bank of Japan (BOJ) unanimously decided to keep its monetary policy unchanged at its policy meeting today. The decision was widely expected. The Bank will continue to purchase Japanese Government bonds (JGBs) at a pace of 50 trillion yen (£286bn) annually to help achieve its inflation target (i.e. 2% in 2015).
The BOJ’s overall economic assessment remains unchanged. It sees a trend of moderate economic recovery, although it downgraded manufacturing production following a fall in domestic demand due to April’s VAT rise and a subsequent inventory adjustment.
At his regular press conference, BOJ Governor Kuroda reiterated that the Bank would not hesitate to take further actions if necessary.
Comment
Although Kuroda remains confident in achieving BOJ’s inflation target, most private commentators continue to expect BOJ to change its monetary policy. Some believe that the current easing measures are inadequate and will need to be enhanced to achieve the 2% inflation target. Others expect the Bank to be forced to extend the timing from ‘in 2015’ to a longer-horizon such as by 2018.
A possible further weakening of the Yen could be another consideration when deciding whether there should be additional easing. Some commentators, including Keidanren (=CBI) Chairman Sakakibara believe the Yen falling below 110 Yen/USD may do more harm than good to the overall economy. Yesterday, Korea’s President Park also expressed concerns over the possible negative impact on its economy of the won’s 3.5% strengthening against the yen in Q3. This has also been cited in the context of Samsung’s announcement today that it forecasts a 60% fall in quarterly operating profit. Such concerns may be further exacerbated as tapering ends in the USA.
Disclaimer
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