By Max Sato
(MaceNews) – The Bank of Japan said Wednesday it is maintaining its stimulative policy, as expected, to support a gradual recovery from the pandemic-caused slump and continue its eight-year-old campaign to guide low inflation toward stable 2%.
At its two-day meeting that ended just before midday Wednesday, the BOJ’s nine-member board decided 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.
“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, repeating its recent statement.
Reflationist board member Goushi Kataoka, a former private-sector economist, continued dissenting, arguing that it was “desirable to further strengthen monetary easing by lowering short-and long-term interest rates, with a view to encouraging firms to make active business fixed investment for the post-COVID-19 era,” according to the BOJ.
BOJ Still Sees Economic Pickup Despite Pandemic
The BOJ noted that supply chain disruptions are affecting some Japanese exports and factory output, but also maintained its view that they are still increasing.
The bank said private consumption remains “stagnant” due to the drag from Covid-19 on spending on services while business investment in equipment is picking up despite weakness in some sectors.
“Although the level of Japan’s economic activity, particularly in the face-to-face services sector, is expected to be lower than that prior to the pandemic for the time being, the economy is likely to recover, with the impact of COVID-19 waning gradually,” the BOJ said, repeating its outlook in the July report. The progress in vaccinations and external demand as well as domestic economic stimulus should support the recovery, it added.
The BOJ noted that the year-on-year change in the core CPI (excluding fresh food) has been around zero percent as higher energy costs are mitigating the downward pressure from low-cost monthly data plans introduced in April by major mobile phone carriers.
Looking ahead, the core CPI it is expected to “increase gradually,” backed by energy prices and as the base effect of lower mobile phone charges dissipates, it said.
BOJ Unlikely To Taper Soon
While other major central banks are gradually tapering or discussing reducing large asset purchases as part of normalizing monetary policy, the BOJ is unlikely to join the bandwagon, given that it is still far from even reaching the halfway point of achieving its 2% inflation target and the negative output gap of the Japanese economy remains wide.
The pace of the BOJ’s bond purchases has already slowed from a peak and it has made its holdings of exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) seem less dominant in the stock markets (buying them “as necessary”) in response to criticism that the bank was distorting price formation.
Under the current 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 through large-scale purchases of Japanese government bonds without setting an upper limit, and to keep the overnight interest rate at -0.1% by charging 0.1% interest on a part of cash reserves parked at the bank by financial institutions.
The BOJ will continue purchasing exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) “as necessary” with upper limits of about Y12 trillion and about Y180 billion, respectively, on annual paces of increase in their amounts outstanding.
The bank will also purchase CP and corporate bonds with an upper limit on the amount outstanding of about Y20 trillion in total until the end of March 2022.