BOJ maintains QQE target, housing now picking up

   Japan's central bank maintained its target for expanding the country's monetary base by an annual 80 trillion yen and reiterated its long-held view that the economy was "expected to continue recovering moderately."
    The Bank of Japan (BOJ), which in April pushed back its estimated timeframe for reaching its 2 percent inflation target to the first half of fiscal 2016 from the current fiscal year, which ends March 31, 2016,  also repeated that consumer price inflation is likely to be around zero percent for the time being due to the decline in energy prices.
    The only minor tweak to this month's statement by the BOJ's policy board concerned housing. Today the statement said "housing investment has started to pick up" while in May the board said "housing investment has bottomed out and shown some signs of picking up."
    The BOJ embarked on "quantitative and qualitative easing" (QQE) in April 2013 to rid the country of 15 years of deflation but has been thwarted in its efforts to boost inflation due to last year's drop in oil prices and a larger-than-expected hit to consumption from a rise in sales tax.
    In its quarterly update on April 30, the BOJ trimmed its forecast for headline inflation in fiscal 2015 to 0.8 percent from January's forecast of 1.0 percent, and for inflation in fiscal 2016 to reach 2.0 percent, down from its previous forecast of 2.2 percent.
    In April Japan's headline inflation rate fell to 0.6 percent from 2.3 percent in March. Although the drop in inflation was was largely expected, it reinforced expectations that the BOJ will expand its aggressive easing policies later this year.
    In October 2014 the BOJ surprised financial markets by expanding its stimulus program by 30 trillion yen in response to the hit to inflation and consumption from the April 2014 tax rise and last month the International Monetary Fund called on the BOj to be ready for further monetary easing as the transmission of its stimulus to inflation was taking longer than expected due to the fall in energy prices, the deeply-rooted deflationary mindset of many Japanese and structural problems.
    Joining other major central banks that have recently cut the number of policy meetings, the BOJ's policy board will meet eight times a year from January 2016, down from 14 currently.
    Four of the eight meetings will coincide with the BOJ's outlook report, currently released twice a year. The other four meetings will be used to discuss the latest economic developments. In addition, the BOJ will also release more detailed forecasts that serve as the basis for policy decision along with a summary of the discussions and opinions from each policy board meeting.


   The Bank of Japan issued the following statement:
     

1. "At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided, by an 8-1 majority vote, to set the following guideline for money market operations for the intermeeting period:[Note 1]
   
   The Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about 80 trillion yen.
   
   
2. With regard to the asset purchases, the Bank decided, by an 8-1 majority vote, to continue with the following guidelines:[Note 1]
   
   1. a)  The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions. The average remaining maturity of the Bank's JGB purchases will be about 7-10 years.
      
   2. b)  The Bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at annual paces of about 3 trillion yen and about 90 billion yen respectively.
      
   3. c)  As for CP and corporate bonds, the Bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen respectively.
      
      
3. Japan's economy has continued to recover moderately. Overseas economies -- mainly advanced economies -- have been recovering, albeit with a lackluster performance still seen in part. In this situation, exports have been picking up. Business fixed investment has been on a moderate increasing trend as corporate profits have improved. Against the background of steady improvement in the employment and income situation, private consumption has been resilient and housing investment has started to pick up. Meanwhile, public investment has entered a moderate declining trend, although it remains at a high level. Reflecting these developments in demand both at home and abroad, industrial production has been picking up. Financial conditions are accommodative. On the price front, the year-on-year rate of increase in the consumer price index (CPI, all items less fresh food), excluding the direct effects of the consumption tax hike, is about 0 percent. Inflation expectations appear to be rising on the whole from a somewhat longer-term perspective.
   
   
   4. With regard to the outlook, Japan's economy is expected to continue recovering moderately. The year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices.
      
      
   5. Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the momentum of economic activity and prices in Europe, and the pace of recovery in the U.S. economy.
      
      
   6. Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.[Note 2]
      
      
      [Note 1] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, Mr. T. Sato, and Mr. Y. Harada. Voting against the action: Mr. T. Kiuchi. Mr. T. Kiuchi proposed that the Bank will conduct money market operations and asset purchases so that the monetary base and the amount outstanding of its JGB holdings will increase at an annual pace of about 45 trillion yen, respectively. The proposal was defeated by a majority vote.
      
      [Note 2] Mr. T. Kiuchi proposed that the Bank will, with the aim to achieve the price stability target of 2 percent in the medium to long term, continue with asset purchases and a virtually zero interest rate policy as long as each of these policy measures is deemed appropriate under flexible policy conduct based on the examination from the two perspectives of the monetary policy framework. The proposal was defeated by an 8-1 majority vote. Voting for the proposal: Mr. T. Kiuchi. Voting against the proposal: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, Mr. Y. Morimoto, Ms. S. Shirai, Mr. K. Ishida, Mr. T. Sato, and Mr. Y. Harada. 
      
      
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