Japan: current monetary policy developments
Published 17 June 2014
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0.1 Detail
The BOJ ended its two day monetary policy meeting today with a unanimous decision to keep its current monetary easing policy unchanged. The Bank started its current easing policy, known as Quantitative and Qualitative Easing Policy (QQE), on 4 April 2013. This aims to expand the monetary base by 60-70 trillion yen (£350bn-410bn) annually, mainly purchasing Japanese Government Bonds (JGBs) at a pace of 50 trillion yen (£290bn) per year, in order to realize its 2% inflation target.
The Bank continues to assess that ‘[the economy will] continue a moderate recovery as trend’ despite expected weakness in demand in Q2 after the April consumption tax increase. It judges that ‘[CPI] is likely to be around 1 ¼ % for some time’.
Governor Kuroda kept his position on the Bank’s monetary policy today unchanged at his regular press conference after the meeting. He noted that QQE had been delivering the expected impact and that the Bank would maintain QQE for as long as necessary. He said that the Bank would not hesitate to adjust the policy if risks against its outlook increased.
Comment
Wage inflation due to tighter labour markets will be a crucial element for the Bank to realise its inflation target. Major corporations announced that they would increase their workers’ base salaries starting from this April as result of spring wage negotiations. But government statistics show that the average worker’s base salary continued to fall in April. Commentators suggest that if there is no noticeable base salary improvement by June (by when most of the wage negotiations’ results should be reflected), then there will be a bigger risk that the wage situation may not pick up.
As of the end of May, the BOJ’s JGB holdings have reached 20% (162.2 trillion yen, $940bn) of all JGBs outstanding for the first time. Some market participants have been expressing concerns on lower liquidity in the markets due to one player’s dominance.
0.2 Disclaimer
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