Bank of Japan Keeps Monetary Policy Settings Unchanged

The Bank of Japan held its interest rate at 0-0.10% and made no changes to its 55 trillion yen quantitative easing program.  The Bank said: "Japan's economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen.  As for domestic demand, business fixed investment has been on a moderate increasing trend and private consumption has remained firm.  On the other hand, exports and production have remained more or less flat, due to the slowdown in overseas economies and the yen's appreciation as well as the remaining effects of the flooding in Thailand.  Meanwhile, although global financial markets remain under heavy strain, financial conditions in Japan have continued to ease."

At its December meeting the Bank of Japan held policy settings unchanged, after it expanded its asset purchase program in October by another 5 trillion yen to 55 trillion yen, and previously announced additions to its quantitative easing program during its August meeting.  The Bank had previously changed its asset purchase program in March this year, when it added a further 5 trillion yen to its target.  Japan reported annual headline consumer price inflation of 0% in October and September, down from 0.2% in both August, July and June, and 0.3% in both May and April.  

The Bank is forecasting real GDP growth of -0.4 to -0.3% in fiscal 2011, 1.8-2.1% in fiscal 2012, and 1.4-1.7% in fiscal 2013.  Meanwhile, nominal quarterly GDP growth in Japan was recorded at 1.4% in September, -0.5% in June and -1.7% in March.  The Japanese Yen (JPY) has gained around 7% against the US dollar over the past year; the USDJPY exchange rate last traded around 77.02

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