By Max Sato
(MaceNews) – The Bank of Japan has maintained its easing stance and cautiously optimistic outlook that the economy will recover part of the pandemic-triggered contraction in the next fiscal year and price inflation will edge up toward 1% in about two years.
The BOJ board decided Thursday in an 8-to-1 vote to maintain its current monetary easing stance under the yield curve control framework it adopted in September 2016, vowing to keep zero to negative interest rates as long as necessary to achieve its 2% inflation target in a stable manner.
NO CHANGE IN POLICY, AS EXPECTED
Both no change in policy and minor updates to official economic projections were widely expected.
Also, as expected, reflationist board member Goushi Kataoka, a former private-sector economist, dissented again, arguing that it was “desirable to further strengthen monetary easing by lowering short-and long-term interest rates,” the BOJ said.
Under the framework, the BOJ has been trying to stabilize the 10-year government bond yield, the benchmark for long-term borrowing costs, at around
zero percent, and keep the overnight interest rate at -0.1%.
“For the time being, the bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary, and also it expects short-and long-term policy interest rates to remain at their present or lower levels,” the bank said in a statement after a two-day policy board meeting.
DEEPER FY20 GDP SLUMP, FIRMER FY21 PICKUP
In the face of intensifying headwinds from a second wave of coronavirus infections in many parts of the world, BOJ policymakers lowered their growth forecast for the current fiscal year ending next March, and revised up their projection slightly for fiscal 2021, a case of a deeper slump followed by a stronger rebound. They made slight changes to their inflation outlook but are basically keeping the line that the current price drops will be partly offset next year.
The board’s revision to its medium-term inflation projection was limited. It repeated its recent assessment that risks to both growth and inflation are “skewed to the downside” and its outlook remains “extremely unclear” amid the lingering impact of the global pandemic.
In the bank’s quarterly Outlook Report, the median forecast for the core consumer price index (excluding perishables) by the nine-member board was revised down slightly to -0.6% for fiscal 2020 from -0.5% projected in July.
Excluding the direct impact of a sales tax hike to 10% from 8% that took effect in October 2019 (+0.5 percentage point), and free education subsidies by the government (-0.4 percentage point), the core CPI reading is projected to fall 0.7% in the current fiscal year, revised down from -0.6% forecast in July.
The median inflation forecast for fiscal 2021 was revised up slightly to +0.4% from +0.3% made in July and the forecast for fiscal 2022 was unchanged at +0.7%.
The median economic growth forecast for the current fiscal year was revised down to -5.5% from -4.7% projected in July. The real GDP projection for the next fiscal year was +3.6%, revised up from +3.3% forecast three months ago, and that for fiscal 2022 was +1.6% vs. +1.5% in the previous outlook.
The BOJ estimates Japan’s potential economic growth rate to be just above 0% while the government sees it around 0.7%, based on the latest GDP data.
In its baseline outlook, the BOJ said, “The year-on-year rate of change in the CPI is likely to be negative for the time being, mainly affected by COVID-19, the past decline in crude oil prices, and the ‘Go To Travel’ campaign (government-sponsored discounts on hotel fees).”
The BOJ basically maintained its assessment of key components of the Japanese economy in the Outlook Report, little changed from its statement issued after the last policy meeting on Sept. 16-17.
* Exports and industrial production have increased.
* Business fixed investment has been on a declining trend due to deterioration in corporate profits.
* With the continuing impact of COVID-19, the employment and income situation has been weak.
* Private consumption has picked up gradually on the whole, although consumption of services, such as eating and drinking as well as accommodations, has remained at a low level.