BOJ maintains policy, raises growth, lower inflation f'cast

     The Bank of Japan (BOJ) maintained its monetary policy stance, with two new deputy governors voting with Governor Haruhiko Kuroda, as the bank's growth forecast for the current fiscal year was raised while the inflation forecast was lowered.
      The BOJ, which in September 2016 changed the focus of its monetary policy to yield curve control from quantitative easing to boost inflation to 2 percent, added risks to economic activity in fiscal 2018 were balanced while the risk were skewed to the downside for fiscal 2019, mainly due to international developments and the dampening impact of a hike in taxes in October 2019.
       On the price front, the BOJ said the risks were skewed to the downside from lagging inflation expectations, the lack of responsiveness to the output from some services prices and rent, and the development of foreign exchange rates and international commodity prices.
       In an update to its economic forecast, the majority of the BOJ's board expects Japan's Gross Domestic Product to grow by 1.6 percent in fiscal 2018, which began on April 1, up from 1.4 percent that was forecast in January. This compares with an estimated 1.9 percent growth in fiscal 2017.
       Inflation, which declined to 1.1 percent in March from 1.5 percent in February, is seen averaging 1.3 percent in fiscal 2018, down from the previous forecast of 1.4 percent.
       For fiscal 2019 economic growth is seen at 0.8 percent, up from a previous forecast of 0.7 percent while inflation, including the impact of a hike in sales taxes, is seen unchanged at 2.3 percent.
        For fiscal 2020, growth is seen steady at 0.8 percent while inflation is seen at 2.3 percent and 1.8 percent when the impact of a rise in consumption taxes to 10 percent from 8 percent is excluded.
       The BOJ also confirmed that it will continue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control" as long as necessary in order to reach its 2.0 percent inflation.
        This policy includes a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements along with the purchase of government bonds of around 80 trillion yen in order to keep 10-year government bond yields around 0 percent.
        The two-day meeting by the BOJ's policy board was the first since Governor Kuroda was approved for a second term, and included two new board members: Masazumi Wakatabe and Masayoshi Amamiya.


       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 upon the following.
   
   1. (1)  Yield curve control
      The Bank decided, by an 8-1 majority vote, to set the following guideline for market operations for the intermeeting period. [Note 1]
      The short-term policy interest rate:
      The Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate
      Balances in current accounts held by financial institutions at the Bank.
      The long-term interest rate:
      The Bank will purchase Japanese government bonds (JGBs) so that 10-year JGB
      yields will remain at around zero percent. With regard to the amount of JGBs to be purchased, the Bank will conduct purchases at more or less the current pace -- an annual pace of increase in the amount outstanding of its JGB holdings of about 80 trillion yen -- aiming to achieve the target level of the long-term interest rate specified by the guideline.
   2. (2)  Guidelines for asset purchases
      With regard to asset purchases other than JGB purchases, the Bank decided, by a unanimous vote, to set the following guidelines.
      
      1. a)  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 6 trillion yen and about 90 billion yen, respectively.
      2. b)  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.
2. The Bank will continue with "Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control," 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 continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. The Bank will make policy adjustments as appropriate, taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target. [Note 2]
   
   [Note 1] Voting for the action: Mr. H. Kuroda, Mr. M. Amamiya, Mr. M. Wakatabe, Mr. Y. Harada, Mr. Y. Funo, Mr. M. Sakurai, Ms. T. Masai, and Mr. H. Suzuki. Voting against the action: Mr. G. Kataoka. Mr. G. Kataoka dissented, considering that, taking account of risk factors through fiscal 2020 such as the consumption tax hike and a possible economic downturn in the United States, it was desirable to further strengthen monetary easing, and that it was appropriate for the Bank to purchase JGBs so that yields on JGBs with maturities of 10 years and longer would broadly be lowered further.
   [Note 2] Mr. G. Kataoka dissented, considering that (1) the timing of achieving the price stability target should be clearly stated, and (2) with a view to reinforcing the inflation-overshooting commitment, if there was a delay in the timing of achieving the target due to domestic factors, the Bank should take additional easing measures and that it was necessary to include that in the text."

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