But the Bank of Japan (BOJ) still expects the economy to continue its "moderate expansion" despite the slowdown in overseas economies as domestic demand trends upward, helped by government spending.
"Although exports are projected to show some weakness for the time being, they are expected to be on a moderate increasing trend on the back of overseas economies growing moderately on the whole," BOJ said.
In today's statement, the BOJ's policy board confirmed its monetary policy of controlling the yield curve that has been in place since September 2016 - Quantitative and Qualitative Easing with Yield Curve Control (QQE) - and this policy would continue until inflation reaches its 2 percent target.
In its outlook for economic activity and prices from January, the BOJ lowered its inflation forecast for the fourth time, with inflation excluding fresh food seen rising only 0.8 percent in fiscal 2018, which ends this month, down from October's forecast of 0.9 percent.
In January Japan's core inflation rate edged up to 0.8 percent from 0.7 percent in December.
Consumer prices in fiscal 2019, excluding the impact of the consumption tax hike, are seen rising 0.9 percent, down from 1.4 percent previously forecast, due to lower oil prices, and for fiscal 2020 inflation is seen at 1.4 percent, down from 1.5 percent.
Japan's economy is expected to continue to expand around its potential rate, with growth in fiscal 2018 hit by natural disasters last summer.
The estimate of gross domestic product growth in fiscal 2018 was lowered to 0.9 percent from October's forecast of 1.4 percent.
GDP grew 0.5 percent in the fourth calendar quarter of 2018 from the third quarter for annual growth of 0.3 percent, up from 0.1 percent in the third quarter.
For this coming fiscal year, the forecast for growth was revised up to 0.9 percent from a previous 0.8 percent, and for fiscal 2020 growth is seen at 1.0 percent, up from 0.8 percent.
After falling from March 2018 to December, the yen rose strongly in late December but has given up some of those gains this year. Today the yen was trading at 111.8 to the U.S. dollar, down 1.3 percent this year.
As part of its monetary policy, the BOJ reiterated it would maintain 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.
As part of its QQE policy, the BOJ also purchases Exchange-Traded-Funds (ETFs) and real estate investment trusts (J-REITs) so the outstanding amounts increases at an annual pace of about 6 trillion and about 90 billion yen, respectively.
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) Yield curve control
The Bank decided, by a 7-2 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. While doing so, the yields may move upward and downward to some extent mainly depending on developments in economic activity and prices.1 With regard to the amount of JGBs to be purchased, the Bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen. - (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 ) In case of a rapid increase in the yields, the Bank will purchase JGBs promptly and appropriately.
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.
- Japan's economy is expanding moderately, with a virtuous cycle from income to spending operating, although exports and production have been affected by the slowdown in overseas economies. Overseas economies have been growing moderately on the whole, although slowdowns have been observed. In this situation, exports have shown some weakness recently. On the domestic demand side, business fixed investment has continued on an increasing trend, with corporate profits and business sentiment staying at favorable levels on the whole. Private consumption has been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Meanwhile, housing investment has been more or less flat. Public investment also has been more or less flat, remaining at a relatively high level. Reflecting these developments in demand both at home and abroad, industrial production has been on a moderate increasing trend, although it has shown some weakness recently. Labor market conditions have continued to tighten steadily. Financial conditions are highly accommodative. On the price front, the year-on-year rate of change in the consumer price index (CPI, all items less fresh food) is in the range of 0.5-1.0 percent. Inflation expectations have been more or less unchanged.
- With regard to the outlook, Japan's economy is likely to continue its moderate expansion, despite being affected by the slowdown in overseas economies for the time being. Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, mainly against the background of highly accommodative financial conditions and the underpinnings through government spending. Although exports are projected to show some weakness for the time being, they are expected to be on a moderate increasing trend on the back of overseas economies growing moderately on the whole. The year-on-year rate of change in the CPI is likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium- to long-term inflation expectations rising. [Note 2]
- Risks to the outlook include the following: the U.S. macroeconomic policies and their impact on global financial markets; the consequences of protectionist moves and their effects; developments in emerging and commodity-exporting economies including the effects of the two aforementioned factors; negotiations on the United Kingdom's exit from the European Union (EU) and their effects; and geopolitical risks.
5. 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 CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner. As for policy rates, the Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, taking into account uncertainties regarding economic activity and prices including the effects of the consumption tax hike scheduled to take place in October 2019. It will examine the risks considered most relevant to the conduct of monetary policy and 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 3]
[Note 1] Voting for the action: Mr. H. Kuroda, Mr. M. Amamiya, Mr. M. Wakatabe, Mr. Y. Funo, Mr. M. Sakurai, Ms. T. Masai, and Mr. H. Suzuki. Voting against the action: Mr. Y. Harada and Mr. G. Kataoka. Mr. Y. Harada dissented, considering that allowing the long-term yields to move upward and downward to some extent was too ambiguous as the guideline for market operations decided by the Policy Board. Mr. G. Kataoka dissented, considering that, with a further heightening of uncertainties regarding developments in economic activity and prices going forward, it was desirable to strengthen monetary easing.
[Note 2] Mr. G. Kataoka dissented, considering that the possibility of the year-on-year rate of change in the CPI increasing toward 2 percent going forward was low at this point.
[Note 3] Mr. Y. Harada dissented, considering that, as for policy rates, it was appropriate to introduce forward guidance that would further clarify its relationship with the price stability target. In order to achieve the price stability target of 2 percent at the earliest possible time, Mr. G. Kataoka dissented, considering that further coordination of fiscal and monetary policy was important, and that it was necessary for the Bank to make a commitment to taking additional easing measures if it revised downward its assessment of medium- to long-term inflation expectations."
www.CentralBankNews.info
0 comments:
Post a Comment