BoJ Holds Monetary Policy Steady, Raises GDP Forecast


The Bank of Japan left the interest rate unchanged at -0.1 percent at its January 2017 meeting, as widely expected. Policymakers also decided to maintain its 10-years government bond yield target around zero percent but said they raised their economic growth forecast to 1.5 percent for 2017 fiscal year from an earlier projection of a 1.3 percent growth.

The Policy Board also decided unanimously to extend by a year the deadline for its loan programmes aimed at boosting lending to industries with growth potential. 

With regard to the amount of JGBs to be purchased, the Bank will conduct buying at more or less the current pace -- an annual pace of increase of about 80 trillion yen.

The BoJ also determined by a 7-2 vote to purchase exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual paces of about JPY 6.0 trillion and about JPY 90 billion, respectively. 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.  

Meanwhile in a quarterly review of the bank's forecasts, it said the higher projections of the GDP mainly reflects improvement in overseas economies and the yen's depreciation. At the same time, the bank kept its projection for core consumer inflation at 1.5 percent for 2017 fiscal year, which starts in April.

Excerpts from the Outlook for Economic Activity and Prices:

Japan's economy is likely to turn to a moderate expansion. Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the household and corporate sectors, on the back of highly accommodative financial conditions and fiscal spending through the government's large scale stimulus measures. Business fixed investment  is likely to maintain its moderate increasing trend, supported by accommodative financial consitions, heightened growth expectations and increases in Olympic Games-related demand. Private consumption is expected to continue increasing moderately as employee income continues to improve. Public investment is projected to increase through fiscal 2017, due mainly to the positive effects resulting from a set of stimulus measures and thereafter remain at a relatively high level with Olympic-Games related demand. Exports are expected to follow a moderate increasing trend on the back of an improvement in overseas economies. The year-on-year rate of change in the CPI is likely to increase from about 0 percent and become slighty positive, reflecting developments in energy prices. Thereafter, it is expected to increase toward 2 percent as the output gap improves and medium-to long-term inflation expectations rise. The timing of the year-on-year rate of change in the CPI reaching around 2 percent will likely be at around fiscal 2018.

For fiscal year 2018, the economy is expected to expand by 1.1 percent, faster than a previous projection of a 0.9 percent growth. Core consumer inflation for the year is projected to stand at 1.7 percent, unchanged from an earlier forecast. 

Bank of Japan l Rida Husna | rida@tradingeconomics.com
1/31/2017 5:24:15 AM