Acknowledging “high uncertainties regarding the outlook for economic activity and prices,” the Bank of Japan (BOJ) said it will maintain its current policy of extremely low interest rates at least to the spring of 2020 and relax its standards for collateral used to obtain credit.
Since September 2016 the BOJ has employed ultra-easy monetary policy that uses a combination of a negative interest rate of minus 0.1 percent to banks’ reserves that exceed reserve requirements along with asset purchases aimed at keeping Japanese government bond yields around zero percent.
While the BOJ confirmed it will maintain this negative interest rate and buy government bonds of around 80 trillion yen to keep yields low, it said it wanted to clarify that it will “persistently continue with powerful monetary easing” and in the case of a rapid rise in bond yields, it would purchase Japanese government bonds, or JGBs, “promptly and appropriately.”
“The Bank intends to maintain the current extremely low levels of short- and long-term interest rates for an extended period of time, at least through around spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike (in October 2019),” BOJ said.
The BOJ still expects Japan’s economy to continue to expand through fiscal 2021 despite the impact of slower global growth, with domestic demand continuing to trend upwards and exports rising increase moderately despite some weakness.
“With regard to the risk balance, risks to both economic activity and prices are skewed to the downside,” BOJ said in it its latest economic outlook.
Inflation, which remains far below BOJ’s 2.0 percent target, is still expected to slowly rise toward 2.0 percent but it acknowledged that momentum toward meeting this target is “not yet sufficiently firm, and thus developments in prices continue to warrant careful attention.”
In March Japan’s headline inflation rate rose to 0.5 percent from 0.2 percent in February and January while gross domestic product only grew an annual 0.3 percent in the fourth quarter, up from 0.1 percent in the third quarter.
The BOJ lowered its estimate for GDP growth for fiscal 2018, which ended April 1, from January’s forecast of 0.9 percent.
For fiscal 2019, Japan’s economy is seen growing 0.8 percent, down from a previous 0.9 percent, and for fiscal 2020 the economy is seen growing 0.9 percent, down from 1.0 percent seen in January. For fiscal 2021, the BOJ forecast growth of 1.2 percent.
Inflation for fiscal 2018 was estimated at 0.8 percent and at 1.1 percent for fiscal 2019, unchanged from January. For fiscal 2020 inflation for all items was forecast at 1.4 percent, down from January’s forecast of 1.5 percent and for fiscal 2021 inflation is seen at 1.6 percent, still below its target.
