BOJ maintains policy, economy recovering moderately

     Japan's central bank maintained its monetary policy stance, as expected, repeating almost word-for-word its statement from last month in which it sees the country's economy "recovering moderately" and inflation will remain around zero percent for the time being to to the effects of the drop in energy prices.
    The Bank of Japan (BOJ) embarked on "quantitative and qualitative easing (QQE) in April 2013 to rid the country of almost 15 years of deflation but has found its efforts hampered by the fall in crude oil prices and a larger-than-expected hit to demand from a rise in sales taxes.
    In April the BOJ pushed back its estimate for reaching its inflation target of 2.0 percent to the first half of fiscal 2016, which begins on April 1, 2016, from the 2015 fiscal year.
     On July 15 the BOJ lowered its forecast for economic growth in the current fiscal 2015 year to 1.7 percent from April's forecast of 2.0 percent. It forecast inflation, excluding the impact of last year's sales tax rise, this fiscal year of 0.7 percent, down from its previous forecast of 0.8 percent.
    Japan's Gross Domestic Product in the first calendar quarter expanded by 1.0 percent from the previous quarter for annual contraction of 0.9 percent, the fourth quarter in a row with a declining annual growth rate.
    The consumer price inflation rate eased slightly to 0.4 percent in June from 0.5 percent in May.

    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 and industrial production have been picking up, albeit with some fluctuations. 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 been picking up. Meanwhile, public investment has entered a moderate declining trend, although it remains at a high level. 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) 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, Ms. S. Shirai, Mr. K. Ishida, Mr. T. Sato, Mr. Y. Harada, and Mr. Y. Funo. 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, Ms. S. Shirai, Mr. K. Ishida, Mr. T. Sato, Mr. Y. Harada, and Mr. Y. Funo."
      
      
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