Bank of Japan Maintains Negative Interest Rate
Bank of Japan.

JAKARTA (TheInsiderStories) – The Bank of Japan (BOJ) left its key short-term interest rate unchanged at -0.1 percent at its December meeting on Thursday (12/19). Policymakers also kept the target for the 10-year Japanese government bond yield at around zero percent and maintained its upbeat assessment of the economy. However, policymakers offered weaker views on industrial output, mainly due to the impact of natural disasters.

Japan’s economy has been on a moderate expanding trend, with a virtuous cycle from income to spending operating, although exports, production, and business sentiment have shown some weakness, mainly affected by the slowdown in overseas economies and natural disasters,” the policymakers said.

With regard to the amount of JGBs to be purchased, the bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen.

The BoJ also determined by a unanimous vote to purchase exchange-traded funds (ETFs) ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual pace of about 6 trillion yen and about 90 billion yen, respectively.

With a view to lowering risk premia of asset prices in an appropriate manner, the bank may increase or decrease the number of purchases depending on market conditions. 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.

On the price front, the YoY rate of change in the consumer price index (CPI, all items less fresh food) is at around 0.5 percent. Inflation expectations have been more or less unchanged.

With regard to the outlook, Japan’s economy is likely to continue on a moderate expanding trend, as the impact of the slowdown in overseas economies on domestic demand is expected to be limited, although the economy is likely to continue to be affected by the slowdown for the time being.

Domestic demand is expected to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, mainly against the background of highly accommodative financial conditions and active government spending.

Although exports are projected to continue showing some weakness, for the time being, they are expected to be on a moderate increasing trend. The year-on-year rate change in the CPI is likely to rise gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium-to-long-term inflation expectation rising, despite such effects as of the fall in oil prices.

The policymakers said risks to the outlook include the following: the United States macroeconomic policies and their impact on global financial markets; protectionism; developments in emerging and commodity-exporting economies such as China; development in global adjustment in IT-related goods; negotiations on Britain’s exit from the Europa and their effects.

Downside risks concerning overseas economies seem to remain significant, and it also is necessary to pay close attention to their impact on firms’ and households’ sentiment in Japan, the policymakers stated.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com