–March Meeting Last Scheduled One for Governor Kuroda Before His 2nd 5-Year Term Ends on April 8
–Kuroda’s 2 Deputies Will Also Retire at End of Their 5-Year Terms on March 19
–Incoming Governor, Ex-BOJ Board Member Kazuo Ueda Has Told Diet Current Easing Stance ‘Appropriate’
By Max Sato
(MaceNews) – The Bank of Japan said Friday its policy board decided unanimously to maintain its monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases to support gradual economic recovery and guide inflation toward stable 2%.
The two-day policy meeting that ended Friday was the last scheduled one for Governor Haruhiko Kuroda, who has led the bank’s ‘unprecedented’ large-scale monetary easing campaign for nearly 10 years based on the central bank’s policy coordination agreement with the government as part of a reflationary Abenomics policy mix of aggressive monetary easing, flexible fiscal spending, and growth strategies.
BOJ policymakers were initially successful in boosting zero inflation to end 15 years of deflation but have had a tough time keeping the momentum, first hit by a plunge in crude oil prices from 2014 to 2016 and the lingering drag from the sales tax hike from 5% to 8% in 2014. They also blamed the deflationary mindset among households and businesses. The bank is still in pursuit of stable 2% inflation that comes with sustainable wage hikes and economic growth.
Before Kuroda’s second five-year term ends on April 8, the two deputy governors — Masayoshi Amamiya and Masazumi Wakatabe — will also retire at the end of their five-year terms on March 19.
The government will formally appoint economics professor Kazuo Ueda as BOJ governor, as well as Shinichi Uchida, one of the six BoJ executive directors supporting the governor, and Ryozo Himino, a former Ministry of Finance official, as deputy governors. Their nominations were approved by parliament Friday.
No Immediate Policy Shift Expected Under New Governor
During his Diet confirmation hearings, Ueda told lawmakers that it is “necessary and appropriate” to continue monetary easing under the current economic conditions in order to achieve stable 2% inflation and help firms raise wages.
Ueda also said there is no immediate need to review the 10-year-old policy coordination accord with the government. The then prime minister Shinzo Abe, who had led his Liberal Democratic Party back to power with a landslide win in December 2012 lower house elections, demanded that the central bank adopt a clear 2% inflation target, instead of trying to achieve a stable 1% price increase in the long term.
BOJ Keeps Interest Rate Targets, Asset Purchases
The bank’s board unanimously maintained its latest decision made in December to allow the yield on the 10-year Japanese government bonds to rise to 0.5% from the previous cap of 0.25% amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
The BOJ board confirmed that the bank will continue offering to buy 10-year Japanese government bonds at a fixed rate of 0.5% every business day, “unless it is highly likely that no bids will be submitted.” The board decided to introduce this new type of market operation in April 2022.
“Thereafter, the rate of increase is projected to accelerate again moderately on the back of improvement in the output gap and rises in medium- to long-term inflation expectations and in wage growth,” the bank said, repeating its outlook provided in January. It also noted that the government program to push down energy prices for consumers will taper off toward the middle of fiscal 2023.
The current spike in consumer inflation to around 4% is mostly due to elevated energy and commodities costs aggravated by the relatively weak yen. Service prices have been edging up on a slow pace of wage hikes, up 1.2% on year in January, compared to a 7.2% surge in goods prices.
BOJ Sees Japan Economic Recovery Despite Headwinds
The BOJ maintained its assessment of current conditions, saying, “Japan’s economy, despite being affected by factors such as high commodities prices, has picked up as the resumption of economic activity has progressed while public health has been protected from Covid-19.”
“Japan’s economy is likely to recover, with the impact of Covid-19 and supply-side constraints waning, although it is expected to be under downward pressure stemming from high commodities prices and slowdowns in overseas economies,” the bank said, repeating its view presented in the quarterly Outlook Report issued in January.
Looking ahead, the bank repeated its recent risk assessment that “there remain extremely high uncertainties for Japan’s economy” including developments in overseas economic activities and prices, the Ukraine war, commodity prices and the course of the pandemic at home and aboard.
“In this situation, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices,” the bank said, repeating its recent mantra.
Easing Policy Stance Unchanged
At its two-day meeting that ended at around 11:30 a.m. JST Friday (0230 GMT Friday/2130 EST Thursday), the BOJ’s nine-member board decided in a unanimous vote to maintain its overall monetary easing stance under the yield curve control framework that 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.
Under the current framework, the BOJ is keeping the 10-year government bond yield, the benchmark for long-term borrowing costs, at around zero percent by buying “a necessary amount” of Japanese government bonds “without setting an upper limit,” and to keep the overnight interest rate at minus 0.1% by charging 0.1% interest on a part of cash reserves parked at the bank by financial institutions.
The bank also confirmed its overshooting commitment, saying, “It will continue expanding the monetary base until the year-on-year rate of increase in the observed consumer price index (CPI, all items less fresh food) exceeds 2% and stays above the target in a stable manner.”
“For the time being, while closely monitoring the impact of Covid-19, the bank will support financing, mainly of firms, and maintain stability in financial markets, and will not hesitate to take additional easing measures if necessary; it also expects short- and long-term policy interest rates to remain at their present or lower levels,” the bank said, repeating its recent statement.
No Change to ETF, J-REIT Purchases
The BOJ board decided unanimously to leave the main asset purchase guidelines unchanged, as seen in recent meetings. Its dominant presence in the domestic stock markets has supported overall sentiment.
“The bank will purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) as necessary with upper limits of about 12 trillion yen and about 180 billion yen, respectively, on annual paces of increase in their amounts outstanding,” the BOJ said.
The bank will maintain the amount of outstanding of CP (commercial paper) at about 2 million yen. It will purchase corporate bonds at about the same pace as prior to the pandemic so that their amounts outstanding will gradually return to pre-pandemic levels of about 3 trillion yen. “In adjusting the amount outstanding of corporate bonds, the bank will give due consideration to their issuance conditions,” it said, repeating its latest stance.