Monday, October 30, 2017

BOJ maintains policy, Kataoka wants low 15-year yields

     Japan's central bank maintained its monetary policy stance, as widely expected, with board member Goushi Kataoka once again dissenting and calling for additional easing measures so yields on longer-dated bonds are pushed lower.
       Kataoka first dissented at the Bank of Japan's (BOJ) policy board meeting in September and today said the BOJ should purchase government bonds (JGBs) so yields on 15-year bonds remain less than 0.2 percent.
       In an update to its economic outlook, the BOJ revised upwards its growth forecast but lowered the inflation outlook slightly.
       The BOJ said upside and downside risk to economic activity were generally balanced but risks to prices were "skewed to the downside" with momentum toward higher inflation expectations not yet sufficiently firm so "developments in prices continue to warrant careful attention."
       In the 2017 fiscal year, which began April 1, Japan's economy is seen growing by 1.9 percent, up from July's forecast of 1.8 percent, while inflation is seen averaging 0.8 percent, down from 1.1 percent.
      For fiscal 2018, growth is seen slowing to 1.4 percent, the same as forecast in July, while inflation's seen averaging 1.4 percent, down from 1.5 percent previously forecast.
      For fiscal 2019 growth is seen slowing further to 0.7 percent, the same as forecast in July, while inflation is seen accelerating to an unchanged 2.3 percent. However, excluding the effects of a planned increase in consumption tax to 10 percent in October 2019, inflation is seen averaging 1.8 percent, the same as seen in July.
      The BOJ which in September 2016 shifted the focus of its policy of quantitative easing toward yield curve control to boost inflation to 2 percent, said it would continue to apply a negative interest rate of minus 0.1 percent on banks' deposits that exceed reserve requirements and will continue purchasing government bonds around its current pace of around 80 trillion yen in order to keep 10-year government bond yields around 0 percent.
      In addition, the BOJ will purchase exchange-traded funds (ETFs) and real estate investment trusts so their outstanding amount rise by an annual pace of about 6 trillion yen and about 90 billion yen, respectively.
    The BOJ will also continue purchasing commercial paper and corporate bonds at a pace of about 2.2 trillion and 3.2 trillion yen, respectively.
     In September and August Japan's headline inflation rate was unchanged at 0.7 percent.

     The Bank of Japan issued the following statement:

"At the Monetary Policy Meeting held today, the Policy Board of the Bank of Japan decided upon the following. [Note 1]
  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 2]
    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.

      [Note 1] With a view to reinforcing the inflation-overshooting commitment, Mr. G. Kataoka dissented from the decision, considering that, if there was a delay in the timing of achieving the price stability target due to domestic factors, the Bank should take additional easing measures and that it was necessary to include that in the text.
      [Note 2] Voting for the action: Mr. H. Kuroda, Mr. K. Iwata, Mr. H. Nakaso, 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, with a view to lowering the interest rates with longer maturities of the yield curve, it was appropriate for the Bank to purchase JGBs so that 15-year JGB yields would remain at less than 0.2 percent."


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