Japan maintains policy stance, sees moderate recovery

    Japan's central kept its monetary policy stance steady, confirming that it will increase the country's monetary base by about 80 trillion yen on an annual basis, and repeated that it expects the economy to continue its moderate recovery despite exports and production being hit by the slowdown in emerging economies.
    The Bank of Japan (BOJ), which embarked on Quantitative and Qualitative Easing (QQE) in April 2013 and expanded the target by 10-20 trillion yen in October last year, also repeated that it will continue with QQE with the aim of reaching its target of 2 percent inflation.
    Last month the BOJ once again pushed back its expectation for when inflation will reach its target to the second half of fiscal 2016 from the first half of fiscal 2016, which begins April 1.
    The BOJ and the government's efforts to boost economic growth and inflation has been dealt a setback by the fall in oil prices and the slowdown in China, with the economy falling into its fourth recession in five years and inflation hitting zero percent in September.
    In the third quarter of this year Japan's Gross Domestic Product contracted by 0.2 percent from the second quarter, the same result as in the second quarter. On an annual basis the economy expanded by 1.0 percent, the same rate as in the second quarter.
    In last month's semi-annual economic outlook, the BOJ cut its forecast for economic growth in the current 2015 fiscal year to an average of 1.2 percent and to 1.4 percent for fiscal 2016, with growth in fiscal 2017 then expected to fall to only 0.3 percent as consumption is once again is likely to be hit by a planned increase in sales tax on April 1, 2017.
   The forecast for inflation in the current fiscal year was cut to 0.1 percent and to 1.4 percent for fiscal 2016.

 
    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, although exports and production have been affected by the slowdown in emerging economies. Overseas economies -- mainly advanced economies -- have continued to grow at a moderate pace, despite the slowdown in emerging economies. Exports and industrial production have recently been more or less flat, due mainly to the effects of the slowdown in emerging economies. On the domestic demand side, business fixed investment has been on a moderate increasing trend as corporate profits have continued to improve markedly. Against the background of steady improvement in the employment and income situation, private consumption has been resilient and housing investment has been picking up. 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 change 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, although some indicators have recently shown relatively weak developments.
   
   4. With regard to the outlook, Japan's economy is expected to continue recovering moderately. The year-on-year rate of change 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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